Intermodal Rail Freight: A Role for Federal Funding?

Intermodal Rail Freight: A Role for Federal Funding?

Order Code RL31834
CRS Report for Congress
Received through the CRS Web
Intermodal Rail Freight:
A Role for Federal Funding?
Updated August 18, 2004
John F. Frittelli
Specialist in Transportation
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

Intermodal Rail Freight: A Role for Federal Funding?
Summary
As the freight industry enters the peak fall shipping season, many government
officials and industry observers are concerned that the railroads could be
overwhelmed by record volumes of freight. The Surface Transportation Board, the
federal agency that regulates railroads, has taken the unprecedented step of requiring
each railroad to submit a plan on how they intend to prepare for this year’s peak
season. Other industry experts point to recent service disruptions as “early warning
signs”of a possible “capacity crunch” in the nation’s intermodal rail system.
Keeping up with trade growth will require substantial investment to expand
capacity on rail rights-of-way. However, many rail analysts question whether the
freight railroads have the financial means to add capacity at sufficient pace to meet
the anticipated demand. This raises the issue of whether the government could or
should assist the railroads in expanding the capacity of their infrastructure. And if
so, how a funding program could be arranged. Several proposals have been
introduced in the 108th Congress to accelerate investment in the rail network.
A number of concerns have been raised about federal assistance for the
development of freight rail facilities. Some contend that an aid program is
unnecessary, others object to providing public aid for privately owned infrastructure,
and some warn that public aid will do more harm than good.
On the other side of the issue, a number of public benefits can be associated
with improving freight rail infrastructure. One view is that public aid should be
directed to those rail or rail-related projects which improve passenger mobility.
Projects that mitigate grade-crossing delays or upgrade passenger rail corridors are
primary examples. Another popularly held assumption is that public aid should be
provided because there are energy, safety, and environmental benefits to rail
transportation. There are also those who support public aid for rail projects for the
purpose of enhancing freight mobility. This view holds that freight railroads are so
critical to the national economy that upgrading and expanding their infrastructure is
a national concern.
Freight railroads primarily finance projects themselves with almost no
government assistance. The railroads have been investing heavily in their service
capacity, particularly with respect to intermodal terminals. The question is if their
pace of investment is sufficient to meet anticipated demand. There is a growing
sense by some parties that public support for intermodal rail projects must become
more common if growing congestion and inefficiencies in the nation’s intermodal
transportation system are to be corrected.
One proposal is to create a rail trust fund similar to the highway, inland
waterway, and aviation trust funds to provide a regular funding stream. Others
suggest that existing federal programs could be modified to make it easier for freight
rail projects to qualify for federal monies. A related issue is how projects deserving
public support could be identified. This report will be updated as warranted.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
What is Intermodal Rail? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Historical Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Factors Inspiring this Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Economic and Trade Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Highway Congestion Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Grade Crossing Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Railroad Revenue Shortfall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Concerns with Federal Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Inadequate Revenue or Inadequate Competition? . . . . . . . . . . . . . . . . . . . . . 7
Private Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Detrimental to Industry Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Potential Congestion Relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Public Benefits of an Aid Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Passenger Mobility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Freight Mobility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Infrastructure Constraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Military Mobility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Current Funding Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Private Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Federal Funding is Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
State and Local Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
The Alameda Corridor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Policy Options for Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Modal Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Rail Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Multimodal Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Modify Existing Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Railway User Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Intermodal Freight Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Legislative Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
List of Figures
Figure 1. Rail Intermodal Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Intermodal Rail Freight:
A Role for Federal Funding?
Introduction
As the freight industry enters the peak fall shipping season, many government
officials and industry observers are concerned that the railroads could be
overwhelmed by record volumes of freight. Railroads move approximately 40% of
the nation’s freight as measured in ton-miles (the movement of one ton of freight one
mile) and 6% as measured in value. The Surface Transportation Board (STB), the
federal agency that regulates railroads, has taken the unprecedented step of requiring
each railroad to submit a plan on how they intend to prepare for this year’s peak
season. Other industry experts point to recent service disruptions as “early warning
signs”of a possible “capacity crunch” in the nation’s intermodal rail system.1 They
contend that the intermodal rail network is in a fragile state where seemingly local
problems quickly spread throughout the national network because the system is
operating at maximum capacity.
Peak season shipping problems, according to some, are indicative of a longer-
term, underlying capacity problem. A recent Transportation Research Board study
entitled Freight Capacity for the 21st Century points to several trends in the rail
industry as consistent with a condition of tightening capacity.2 These trends include
long-run contraction of the extent of the network, declining net capital stock, rising
profits, slowing train speed, and sporadic service failures. Meanwhile, growing
congestion on certain portions of the nation’s interstate highway system, has also
focused the interest of policymakers on the capability of the railroads to divert more
truck traffic to the rail mode. And increasing demand for commuter rail, whose
trains run on freight track in parts of the country, has put further strain on rail
infrastructure capacity. A recent DOT Inspector General report finds that, “Despite
the [freight] railroads’ investments, certain parts of the railroad system have become
severely congested and cannot accommodate the conflicting demands of both
increasing freight movement and increasing commuter and intercity passenger rail
traffic.”3
1 See for instance, “Intermodal Storm Ahead,” Traffic World, July 12, 2004, p.11.
“Warnings on Intermodal Rail,” Journal of Commerce, March 29-April 4, 2004, p.47.
“Capital Crunch Constrains Intermodal Growth,” American Shipper, Nov. 2003, p. 20.
2 Transportation Research Board, Freight Capacity for the 21st Century, Special Report 271,
National Academy Press, Washington, D.C. 2003, p. 65.
3 U.S. DOT, Office of Inspector General, FRA Oversight of Use of Slow Orders and Track
Reclassification, December 10, 2003, Control # MH-2004-047.

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Keeping up with trade growth, diverting more truck traffic to rail, and
accommodating more frequent passenger trains will require substantial investment
to expand capacity on rail rights-of-way. However, many rail analysts question
whether the freight railroads have the financial means to add capacity at sufficient
pace to meet the anticipated demand. This raises several important but complex
policy issues for Congress.4 Should federal rail policy remain relatively “hands-off”
or does the current situation require a more activist policy? Should government
assist the railroads in expanding capacity on the intermodal network? If so, how
should government funding be arranged? How would rail projects deserving
government support be selected?
The first section of this report provides historical context and reviews some of
the factors inspiring debate on these questions. The next section examines arguments
for and against government involvement in financing rail infrastructure and discusses
the types of rail projects being proposed for public funding. The following section
describes current funding mechanisms and discusses the pros and cons of some
alternative mechanisms for funding and planning rail infrastructure improvements.
The last section identifies legislation introduced in the 108th Congress to accelerate
the pace of investment in rail infrastructure.
Background
What is Intermodal Rail?
Intermodal rail is the movement of cargo in combination with at least one other
mode of transport but under a single bill of lading. Although intermodal rail could
include many types of commodities, such as grain or coal, the rail industry limits the
term to mean the carriage of truck-trailers (with wheels) or containers (without
wheels) by rail. Trucking is critical to intermodal rail transport. Trucks are utilized
for the pick up or delivery of the trailer or container to the shipper at either end of the
rail segment.5 Import and export moves through seaports involve water, in addition
to rail and truck modes. Import and export containers may be transferred directly
between ship and rail if the port has an “on-dock” rail facility. If the rail facility is
located “off-dock,” a truck will transfer the container between the port and railroad.6
A truck may also transfer a container between two rail terminals if the transit
involves two rail networks that do not share a common terminus.7
The most common forms of intermodal rail are trailer-on-flatcar (TOFC),
container-on-flatcar (COFC), and double-stack container (DST). Railroads generally
4 For further information on this topic, see also Jeremy F. Plant, “Railroad Policy and
Intermodalism: Policy Choices After Deregulation,” The Review of Policy Research, June
22, 2002, and John M. Scheib, “Government and Industry Partnership to Develop Rail
Infrastructure in the United States,” Transportation Quarterly, Summer 2002.
5 Often referred to as “store-door” trucking or a “door” move.
6 Often referred to as “bridge” trucking.
7 Often referred to as “crosstown” trucking.

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serve as wholesale operators for intermodal rail services, rather than dealing directly
with shippers. Their intermodal customers are parcel carriers, trucking companies,
ocean container lines, and intermodal marketing companies (IMCs).8
Figure 1 shows the relative traffic densities (based on tonnage) of intermodal
rail routes in the United States.
Figure 1. Rail Intermodal Flows9
(Rail freight density in tons)
Source: U.S. DOT, FHWA, Office of Freight Management and Operations.
Historical Context
Although today the railroads may be operating close to their physical capacity,
it was not very long ago that they were burdened with too much capacity. This
dramatic change in circumstances over the past 20 to 30 years is largely due to
technological innovations coinciding with deregulation and trade growth.
8 United Parcel Service is the railroads’ largest intermodal customer.
9 John Williamson, CRS Technical Information Specialist, assisted in producing this figure.

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A significant development in the recent history of intermodal rail was the
implementation of double-stack container cars in the early 1980s. In 1984, only one
double-stack train per week originated from the West Coast and served only one
inland market. Today over 241 double-stack trains per week originate on the West
Coast and serve all the major U.S. long haul markets.10 Double-stack cars allow
railroads to potentially carry double the amount of containers for a given train length.
This produces cost savings in terms of per unit crew costs and shortens the length of
track needed in switching yards. However, double-stack trains also require higher
clearances for overpasses and tunnels and require expensive lift-on and lift-off
equipment in terminals.
Because intermodalism (and containerization) is a relatively recent
phenomenon, the rail network was largely built before and is not specifically
designed for this type of cargo. This creates some inherent inefficiencies in the
network’s connectivity. For instance, to move a container across the country requires
carriage by more than one railroad. In many instances, depending on the destination,
the western railroad’s track does not directly connect to the eastern railroad’s track,
often requiring a truck to transfer the container “crosstown” between rail terminals.
This most often occurs in Chicago where it is estimated that 3,500 containers a day
are transferred by truck between rail terminals.11 This truck traffic contributes
significantly to the region’s road congestion. St. Louis, Kansas City, Memphis, and
New Orleans are other important interchange points between the eastern and western
rail networks.
When double-stack trains first came into use in the early 1980s, the new
intermodal traffic consumed under-utilized rail capacity. Today, however, due in
large part to deregulation, supply and demand are closer to equilibrium. As a result
of a series of de-regulatory acts, most notably the Staggers Rail Act of 1980 (P.L. 96-
448), and culminating in the Interstate Commerce Commission Termination Act of
1995 (P.L. 104-88), railroads were given more freedom to abandon unprofitable lines
and concentrate traffic on a limited number of high density routes. Deregulation also
spurred industry concentration. Today there are six large freight railroads in North
America: two in the West, two in the East, and two in Canada (with U.S. routes).
The disappearance of excess capacity was also partly a result of the decline of
passenger trains. To support passenger train operations, multiple track, yard
bypasses, and sophisticated signaling systems were installed. This infrastructure
generated additional capacity by allowing trains of varying speeds to use the same
rights-of-way. However, the Rail Passenger Service Act of 1970 created Amtrak,
allowing the private railroads to focus on moving freight. The freight railroads
“economized by strategies such as single tracking and lowering maintenance (track
10 AAR, AAR News, “Intermodal the ‘Best Means’ of Addressing the Dramatic Increase in
Freight Demand,” available at [http://www.aar.org].
11 Critical Cargo: A Regional Freight Action Agenda, Business Leaders for Transportation,
April 2002, p. 7.

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speed) standards.”12 If the railroads are to absorb additional traffic forecasted, or
contribute to highway congestion relief by carrying additional truck traffic, they will
need to make (and are making) substantial investments to expand their track and
terminal network.
Factors Inspiring this Issue
Economic and Trade Growth. Concerns about the pace of investment in
intermodal rail facilities is fueled by economic and trade growth. The DOT
completed a freight forecasting study with DRI-WEFA (now known as Global
Insight) which predicts that over the next 20 years, U.S. freight volumes, in tons, will
increase by nearly 70%. International freight volumes are growing faster than
domestic volumes and are forecasted to nearly double by 2020.13 A major study on
freight rail expects that rail traffic, measured in ton-miles, will increase 47% by
2020.14 This forecast continues trends experienced in recent years. Intermodal has
been the fastest growing segment of rail traffic in the last decade. In the last two
decades, intermodal rail volume has almost quadrupled from 3.1 million trailers and
containers in 1980 to 12.1 million units in 2003.15 In 2003, intermodal surpassed
coal for the first time as the leading revenue source for U.S. freight railroads.16 Much
of the increase in intermodal volumes is the result of burgeoning trade volumes,
particularly in marine containers. Approximately half of U.S. intermodal rail traffic
is generated by imports or exports.
In addition to trade growth, port rationalization strategies by ocean carriers is
also fueling the demand for intermodal rail services. In anticipation of rising
container volumes, ocean lines are deploying larger container ships. Because there
are economies of ship size at sea, but dis-economies of ship size at port, these larger
container ships are calling at fewer U.S. ports. Fewer port calls will, in turn, place
greater reliance on the railroads to disperse and gather container cargo to and from
the hinterland.
Highway Congestion Relief. Many observers believe that intermodal rail,
which is essentially trucks on trains, can provide at least a partial solution for
relieving highway congestion. According to the Texas Transportation Institute’s
Urban Mobility Study, the cost of traffic congestion nationwide totals $78 billion in
12 Robert E. Gallamore, “Perspectives and Prospects for American Railroad Infrastructure,”
Infrastructure, Summer 1998, p. 36.
13 U.S. DOT, Federal Highway Admin., Press Release FHWA 41-02, Oct. 3, 2002. For
further information on DOT’s freight forecast, see [http://www.ops.fhwa.dot.gov/freight].
14 American Association of State Highway and Transportation Officials, Freight-Rail
Bottom Line Report, n.d., p. 51.
15 AAR, Railroad Facts.
16 Craig F. Rockey, “Progress and Promise of Rail Intermodal,” Journal of Transportation
Law, Logistics, and Policy, v. 71, no. 2, Winter 2004.

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wasted time and fuel.17 In the 1990s, truck traffic increased by 37%18 and is expected
to increase by more than one-third by 2010.19
Grade Crossing Conflicts. As rail traffic increases, at-grade rail-highway
crossings increasingly delay automobile and truck traffic. A freight train can be over
a mile long, blocking several road crossings at a time. Most rail terminals are located
in urban areas. Long, slow-moving trains can also delay emergency vehicles.
Replacing at-grade (ground-level) crossings by constructing overpasses,
underpasses, rail trenches, or even relocating track or roads so that they do not
intersect, are very expensive projects. In some cases, railroads have contributed to
the cost of grade-separation projects if they believe the project will improve train
speed. In other cases, railroads may not be interested in the project because they are
satisfied with train speed through the area and believe the project primarily benefits
vehicular traffic. There are also some potential disincentives in law that may cause
railroads not to seek a greater role in crossing elimination projects pursued by
localities.20 Because of the expensive nature of grade separation projects, and
because it is a uniform problem occurring nationwide, many advocate that the federal
government provide substantially more funds to mitigate this problem.
Railroad Revenue Shortfall. Many rail industry observers are concerned
with the industry’s ability to invest in added capacity to meet anticipated demand.
Current investment levels appear to approach the level needed to maintain the
system, but not to add capacity. A railway consultant has estimated that Class I
railroads need to invest $8 billion per year just to maintain their network in its current
condition.21 However, in the decade of the 1990s, total Class I rail capital
expenditures fell far short of this mark, ranging from $4.5 billion in 1990 to $6.6
billion in 1999.22 The Surface Transportation Board (STB)23 has found that most
railroads are “revenue inadequate,” meaning that the railroads can not earn enough
17 As quoted in “Hurry Up and Wait,” Logistics Management and Distribution Report, June
2001, p.17.
18 Stuck in Traffic: How Increasing Traffic Congestion is Putting the Brakes on Economic
Growth, The Road Information Program, May 2001, [http://www.tripnet.org].
19 According to the American Highway Users Alliance, as quoted in Traffic World, June 4,
2001, p.9.
20 Railroads are not required to contribute more than 5% of the cost of the project which may
be limited to that portion of the project that crosses their right-of-way. See 23 CFR 646.210.
21 Testimony of Dr. Allan Zarembski, Zeta-Tech Assocs. U.S. Senate, Committee on
Commerce, Science, and Transportation, Subcommittee on Surface Transportation and
Merchant Marine, Oversight Hearing on the State of the Railroad Industry, May 9, 2001.
22 Testimony of William Rennicke, Mercer Management Consulting, Inc. U.S. Senate,
Committee on Commerce, Science, and Transportation, Subcommittee on Surface
Transportation and Merchant Marine, Oversight Hearing on the State of the Railroad
Industry, May 9, 2001.
23 The Surface Transportation Board is an independent adjudicatory body administratively
housed in the Dept. of Transportation, responsible for the economic regulation of railroads.
[http://www.stb.dot.gov].

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revenues to meet the industry cost of capital. For instance, from 1990 to 1997, while
the cost of capital remained between 11.4% and 12.2%, the railroads’ return on
investment ranged from 1.3% to 9.4%.24
Concerns with Federal Aid
A number of concerns have been raised about federal aid for the development
of freight rail facilities. Some contend that an aid program is unnecessary, others
object to public aid for private infrastructure, and some warn that public aid will do
more harm than good. Still others question the potential of intermodal rail to
alleviate highway congestion.
Inadequate Revenue or Inadequate Competition?
Some dispute the STB’s determination of railroad revenue inadequacy. The
STB’s determination of revenue inadequacy is a long standing controversy that dates
back to the Board’s precursor, the Interstate Commerce Commission. Shipper groups
question how railroads could be considered revenue inadequate at the same time they
were able to attract substantial capital for recent mergers or acquisitions. In
testimony before Congress, a transportation economist questioned the disparity
between the individual railroad data presented in annual reports to shareholders and
the industry-wide data that the STB used to determine revenue adequacy.25 The
witness argued that the STB should use the “real world” data in railroad annual
reports as their basis for determining revenue adequacy.
Policymakers are likely to closely examine the financial health of the railroad
industry in debating the issue of government aid. Opinions differ as to whether or
not the railroads need an external source of capital to augment their reinvestment
capacity. Economists might contend that private investors are not shortsighted and
possess the most skill in supplying the right level of capital to the rail industry. They
may argue that if the pace of commerce and growing truck congestion dictates greater
demand for rail services, private capital, attracted by the prospect of good returns,
will flow to the industry without special government encouragement.
Others contend that natural market forces keep supply of rail facilities in check.
Commentators have suggested that investors “would rather see a rail system that is
capacity-restricted so that railroads can better dictate the price of their service,
leading to higher rates, higher revenues, and higher returns on invested capital.”26
Skeptics opposed to providing federal assistance to the railroads contend that the
24 General Accounting Office, Railroad Regulation, April 1999, GAO/RCED-99-93, p. 45.
25 Testimony of Harvey A. Levine, U.S. Senate, Committee on Commerce, Science, and
Transportation, Subcommittee on Surface Transportation and Merchant Marine, Oversight
Hearing on the State of the Railroad Industry, May 9, 2001.
26 Testimony of Curt Warfel, National Industrial Transportation League, U.S. House of
Representatives, Committee on Transportation and Infrastructure, Subcommittee on
Railroads, Hearing on Obstacles to Rail Infrastructure Improvements, May 22, 2001.

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need for public funds is really “driven by disenchanted investors unhappy with
railroad profits” rather than a need to increase rail capacity.27 Another view is that
a rail system at or near capacity is exactly where it should operate in a deregulated
environment. As one rail executive stated, “neither customers nor stockholders like
paying for excess capacity. If you make a mistake in estimating need, it takes a long
time to compensate.”28
Other observers argue that the shortage of rail infrastructure is not due to
inadequate revenue but inadequate competition. They contend that if one is looking
for an explanation of why there seems to be a chronic shortage of rail service, one
only needs to open an economics textbook and turn to the chapter on monopolistic
behavior. Economic theory suggests, they argue, that in an imperfectly competitive
market, profit-maximizing firms tend to under produce a good and may opt for
different levels of quality than would perfectly competitive firms. The Alliance for
Rail Competition, for instance, argues that more rail to rail competition would drive
efficiencies and provide incentive for rail carriers to raise service quality to levels
that customers demand.
Rail carriers respond that intermodal traffic is highly competitive because of the
container’s easy transferability among modes. Intermodal customers often have
various shipping options. For instance, customers may have a choice of more than
one railroad, they could choose to simply truck the container, or, for transcontinental
traffic, they could choose to utilize the all-water route and ship the container through
the Panama Canal. On a limited number of routes, container-on-barge may be an
additional option. Railroads also note that rail supply shortages mainly occur during
the peak season, lasting only a few weeks a year. They argue that they cannot be
expected to build their physical plant around a relatively short-lived spike in demand
while the rest of the year the infrastructure is underutilized.
Private Infrastructure
Federal support for freight rail raises difficult issues because the freight railroads
operate differently than other modes. An important difference is that, unlike
highways, waterways, and airways, which all use public infrastructure, rail track is
privately owned. This raises the difficult question of whether public funding should
be used to support projects in private ownership and under private control.
Another important difference is that, unlike the other modes, railroads generally
do not share their infrastructure with competing railroads. This raises the issue of
open access. If competitive equity is the rationale for providing railroads with some
form of regular public assistance, some would extend this argument further to include
rail-to-rail competition. In other words, like the other modes, railroads could receive
federal support for infrastructure, but in exchange railroads should compete with each
other over the same track. As one industry analyst stated, “the cost of railroad access
27 “Aluta Continua,” Traffic World, May 21, 2001, p. 14.
28 James McClellan, Norfolk Southern Railroad, as quoted in “U.S. Military Preparedness,
Jammed in the Traffic?” Transportation Research News, Nov.- Dec. 2000, p. 18.

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to federal funds will be some form of open access to railroad lines.”29 However, rail
carriers argue vehemently that imposing open access (‘forced access’ from their point
of view, ‘competitive access’ from the shippers’ point of view) would be detrimental
to the financial health of their industry. Railroads contend that the best way to raise
capital for reinvestment in rail infrastructure is to allow them to continue to operate
without “intrusive” government intervention.
Detrimental to Industry Efficiency
Policymakers are likely to debate whether federal aid to the railroad industry
might do more harm than good to the industry. Topics of discussion include whether
federal support would reduce the rail industry’s efficiency, whether it would actually
slow down the rate of construction in new facilities, and whether it would lead to
investment in uneconomic facilities.
Some industry analysts are concerned that government support for rail projects
could create less incentive for the railroads to continue their cost-cutting initiatives.
Railroads have been improving profitability through mergers, increasing labor
productivity, consolidating terminals, striving to capture more market share from
trucks through service improvements, selling light density track to regional and
shortline railroads, and investing in more fuel efficient locomotives and freight cars.
Further application of technology could not only offer railroads additional cost saving
opportunities but also increase the throughput capacity of existing infrastructure.
Examples of technology deployment include further expansion of double-stack
intermodal trains, computer-aided dispatching systems, and sensors for improving
shipment tracking. Some analysts fear that public aid could dampen the industry’s
pursuit of these cost saving strategies.
Other concerns include possible conflicts between public and private planning
horizons and excessive politicization of the project selection process. Critics
question if public involvement would have the opposite of the intended effect and
actually slow the pace of facility improvements. The public sector generally operates
under a longer term planning horizon and is motivated by broadly-defined needs.
Railroads, on the other hand, are driven by specific customer needs and require faster
return on investments. Some also question whether government can target the right
projects to finance. They are concerned that political considerations will dominate
the selection process.
If federal assistance were in the form of public funds, it could lead to
overinvestment in rail capacity in some places. To the extent that public funds are
available for construction of a new project, the project may have to pass a lower
hurdle in terms of evaluating risk and return than if the project was financed by a
railroad on a stand-alone basis. As is often said in this regard, “you never spend
somebody else’s money as carefully as you spend your own.” Underestimating
investment risk in new facilities could also lead to the development of uneconomic
facilities. For example, due to a slowdown in global trade or changes in shipping
29 Anthony Kruglinski, “Open access: Not if, but when,” Railway Age, Nov. 2001, p. 12.

CRS-10
routes as a result of rail mergers or terminal consolidation, the physical life of a
facility could outlive its economic life.
Potential Congestion Relief
Growing congestion on the nation’s highway system has raised the issue of the
possible need to divert more truck traffic from road to rail. However, when
evaluating the ability of the railroads to take trucks off the highways, it is important
to recognize some of the limitations of intermodal rail in reducing truck traffic.
Intermodal rail almost always relies on trucks for the pickup and delivery portion of
the haul. This truck move frequently occurs in urban areas where the problem of
congestion is most acute. Therefore, intermodal rail’s contribution to congestion
relief is probably most applicable to reducing the number of long-haul trucks on the
interstates connecting cities, rather than reducing the number of short-haul trucks on
urban streets and circumferential highways.
When assessing the potential of the railroads to take trucks off the highways, it
is also important to recognize a distinction between international and domestic
intermodal service. Railroads have demonstrated their ability to successfully capture
the inland portion of international container shipments. However, international
marine container shippers are generally less service sensitive and more price-elastic
than domestic truckload shippers. A one or two day delay, in the context of a week
to three week ocean transit, is not completely unexpected. Domestic shippers, on the
other hand, demand more precise schedules. The time and cost of the truck pick up
or delivery at either end of a rail move must be considered. In the words of one rail
analyst:30
The trouble with intermodal transport is that complexity increases the risk of
failure. In theory, any good 4x100-m relay team should beat the world champion
400-m sprinter, but the relay team has higher risk of a dropped baton, or even late
arrival at the stadium. So, no matter how elegant the piece parts, if more
complexity reduces reliability and margins for error are too slim, what ought to
be possible just might not be.
An additional consideration in evaluating the potential of rail to alleviate
highway congestion is the economics of short-haul intermodal traffic. Short-hauls
generate the greatest amount of truck traffic. However, intermodal rail generally is
not competitive with trucks for hauls less than about 500 miles, which is the point
where double-stack trains also generally break even. Although the market potential
for short-haul rail is large, it offers even thinner profit margins (or none at all) for the
railroads compared with long-haul intermodal. One of the difficulties for the
railroads in capturing this market is that the highway system has dispersed
manufacturing and distribution centers. Similar to passenger rail, successful freight
rail requires high density. Trucks have less difficulty in finding a load for the
backhaul portion of a move because they are not limited by track. Trucks can also
offer shippers more flexible scheduling.
30 Robert E. Gallamore, “Perspectives and Prospects for American Railroad Infrastructure,”
Infrastructure, Summer 1998, p. 36.

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Public Benefits of an Aid Program
An important topic of discussion in the debate about aiding and assisting rail
infrastructure development is clarifying under what conditions public aid might be
provided. One view, which is well established, is that public aid should be directed
to those rail or rail-related projects which improve passenger vehicle mobility.
Projects that mitigate grade-crossing delays or upgrade passenger rail corridors are
primary examples. Another popularly held assumption is that public aid should be
provided because there are energy, safety, and environmental benefits to rail
transportation. In this view, these external benefits are justifiably not likely reflected
in the rail industry’s investment decisions. The market’s tendency to under-produce
these public goods, it is argued, warrants a role for government. There are also those
who support public aid for rail projects for the purpose of enhancing freight mobility.
This view holds that freight railroads are so critical to the national economy that
upgrading and expanding their infrastructure is a national concern. An argument
could also be made that public assistance for rail infrastructure is advisable for
national security reasons.
Passenger Mobility
Grade crossing separation and crossing signal upgrades are well established as
rail-related projects with strong public interest. Grade crossing separation is
traditionally viewed as a public good because it improves the safety and mobility of
vehicular traffic. As a side benefit, it may also improve the flow of train traffic. The
Rail-Highway Grade Crossing Program (23 U.S.C. 130) provides funds for
improving grade crossings.
Public benefits are also traditionally associated with improving infrastructure
on intercity passenger or commuter rail corridors. Passenger rail financing is
inextricably linked with freight trains because most passenger trains run on track
owned by the freight railroads. Investment in positive train control technologies and
upgrading right of way for high-speed rail are projects that improve passenger
mobility but may also have collateral benefits for freight train operations. The
freight railroads are cautious of accepting public funding for track upgrades for
passenger operations because they fear loss of control over future investment
decisions. They are also skeptical of the long-term physical compatibility of freight
and passenger trains sharing the same track.31 One advantage of accepting public
funding for passenger rail upgrades is that the freight railroads can access capital at
lower interest rates from public sources than from private money markets.32
Another rationale for funding rail projects is that cities need intermodal options
because of serious congestion problems on urban highways. Many argue that
building additional highway lane miles will not improve highway mobility in the long
run. Due to the expensive nature of highway construction and limited space for
31 “Why One Problem at a Time Won’t Work,” Railway Age, Sept. 2001.
32 Charles H. Banks, “Point of View, Freight Railroads Need Passenger Trains,” Railway
Age, Nov. 2001, p. 14.

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widening highways in many urban areas, many believe cities need to find more
integrated transportation solutions. Proponents of intermodal rail assert that
improving the rail links with ports and between rail terminals in metropolitan areas
could significantly reduce the amount of “bridge” and “crosstown” truck traffic. This
would not only expedite the flow of goods but also reduce the amount of truck traffic
intermingling with highway commuter traffic. Mitigating highway congestion can
also generate air quality improvements. Finally, it is argued that taking heavy trucks
off highways can reduce highway maintenance costs.

Freight Mobility
Due to economic and trade growth, some policymakers believe a “bolder vision”
of rail’s place in the nation’s transportation system is necessary. Freight advocates
believe that the nation’s intermodal infrastructure is failing to keep pace with
international commerce. In the words of one industry representative:

The key aspect of our future is simply this. If the U.S. economy is going to
continue its amazing growth, there needs to be a renaissance of the North
American railroad industry. Renaissance does not come easily. I realize that
many who call for dramatic change are branded as heretics, but the situation with
the major railroads has to change - for everyone’s sake.33
The National Center for Intermodal Transportation presents another view:34
Just as the construction of the Interstate Highway System, which began a half
century ago, served as a catalyst for a period of economic growth unrivaled in
world history, the development of an integrated, efficient, and seamless
intermodal transportation system will enable other economic sectors to enjoy
enhanced productivity as well, thereby enhancing overall economic growth and
securing a competitive position for the U.S. in the global economy.
Proponents of intermodalism, such as those cited above, contend that it
increases the overall efficiency of the nation’s freight transportation system because
it optimizes the strengths of each mode. Rail transportation’s fundamental advantage
derives from steel wheels on steel track, reducing the friction of moving heavy loads.
According to one study, rail transportation is three or more times more fuel efficient
than trucks,35 which could also translate into lower freight rates for shippers.
Intermodal rail could also benefit the trucking industry. Some trucking firms
utilize rail service for the long-haul portion of a move, passing on the cost savings
to their customers. Partnering with railroads can also reduce wear and tear on truck
33 Ed Emmett, President of the National Industrial Transportation League, speech titled
“Railroads’ Renaissance - The Key to Economic Growth,” March 3, 2001. Available at
[http://www.nitl.org/railsp.htm].
34 National Center for Intermodal Transportation, A New Transportation Agenda for
America, Nov. 2001. Available at [http://www.ie.msstate.edu/ncit/].
35 American Association of State Highway and Transportation Officials, Freight-Rail
Bottom Line Report, n.d. p. 29.

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drivers. It is argued that if rail is used for the long-haul portion of a move while
trucks are used for the short-haul pick up and delivery, truck drivers can work more
conventional hours and stay closer to home. This can lessen the fatigue factor for
drivers and help reduce driver turnover.
Infrastructure Constraints. To enhance freight mobility, the railroads have
identified where they need to increase intermodal capacity. Although price is always
important, in a “just-in-time” delivery environment, reliability is paramount and
service reliability demands quality infrastructure. Relieving capacity constraints at
identified bottlenecks is especially critical. Rail and road connections with ports and
inland terminals are often choke points in the intermodal network.
The main rail lines are experiencing high track utilization rates. Most of the
main line system is single tracked. Double tracking and increasing the number of
sidings in some regions would allow time sensitive intermodal trains to pass less
service sensitive trains. Another capacity constraint occurs in urban areas where train
speed has to be greatly reduced at present. Inadequate terminal capacity is a major
cause of traffic buildup on tracks leading to terminals. Tunnels and bridges with
clearances too low for double-stack trains are other physical constraints, especially
in the East.
Military Mobility
The rail network, particularly intermodal, is also viewed as important for
military mobilization. Rail is used to move unit equipment and munitions to the
Department of Defense’s designated strategic seaports in the United States. DOD
contracts with private commercial carriers, including railroads, to supply more than
85% of its transportation needs in both peacetime and wartime.36 Many are
concerned that adequate transportation infrastructure may not exist, particularly
during peak shipping seasons, to handle a rapid surge in case of a military crisis. As
one columnist noted:37
The concern is well founded. Continued traffic growth accompanied by asset
rationalization has brought supply and demand into closer balance. The network
no longer enjoys the luxury of overcapacity. As a nation, we reap the
efficiencies brought about by transportation deregulation... Many people forget
that, prior to deregulation, overcapacity was a specific public goal. Carriers had
protected business segments in exchange for maintaining excess capacity, which
would be called upon in times of national emergency.
36 “U.S. Military Preparedness, Jammed in the Traffic?” Transportation Research News,
Nov.-Dec. 2000, p. 22.
37 Theodore Prince, “Warnings, war and the wall,” American Shipper, Nov. 2001, p.76.

CRS-14
Current Funding Mechanisms
Private Funds
Class I freight railroads primarily finance projects themselves with almost no
public assistance. An intermodal transportation research group estimates that
railroads contribute approximately 87% of the total cost of rail infrastructure projects.
The remaining 13% is provided by federal funding (3%), and state and local
governments (5% each).38 Railroads raise money through bond and stock sales, bank
loans, and revenues generated internally. A rail executive briefly outlined what could
be described as a “market-driven” approach to investment decisions:39
! Market determines infrastructure needs
! Infrastructure needs dictate investment requirements
! Return on investment determines whether market is worth serving.
As industry trade journals frequently describe, railroads have been investing
heavily in their service capacity, particularly with respect to intermodal terminals.
The railroads have been consolidating intermodal terminals and in some cases
moving terminals from city centers to the outskirts. In 1999 and 2000, the rail
industry spent about one-fifth of its revenue base on intermodal infrastructure.40
Federal Funding is Limited
In modern times, federal programs have funded some rail related projects but
relative to other modes, funding is limited. Three programs in the Federal-aid
highway program detailed in TEA-21 that have been used for rail or rail related
projects are the Surface Transportation Program (STP), the Congestion Mitigation
and Air Quality Improvement program (CMAQ), and the Corridors and Borders
Program (CORBOR).
STP funds have been used primarily for safety improvements to existing rail
grade crossings, such as installing warning devices or improving grade crossing
surfaces. The Rail-Highway Grade Crossing Program (Section 130, Title 23 of the
U.S. Code) provides funds for the separation of grade-crossings, including relocating
roadways or rail lines to eliminate road and rail intersections. Current funding is
approximately $155 million per year.
CMAQ funds have been used to improve rail links to ports or links between rail
networks where truck traffic and their emissions are reduced in air quality non-
38 Foundation for Intermodal Research and Education, “Intermodal Building Blocks:
Blueprint for change.” Third Freight Roundtable, Newport Beach, CA., July 24-25, 2001.
Available at [http://intermodal.org/FIRE/thirdroundtable.html].
39 Jim McClellan, Norfolk Southern, “Rail Freight Infrastructure: A Role for Public
Financing?” St. Louis, MO. Apr. 30, 2001. Available at [http://www.fhwa.dot.gov/freight].
40 “Intermodal Set to Become Railroads’ Biggest Source of Revenue Growth,” U.S. Rail
News, Oct. 9, 2002, p.162.

CRS-15
attainment areas. Examples of rail related projects that were partly financed with
CMAQ funds include the Columbia Slough Intermodal Expansion Bridge. This
project expanded a rail bridge connecting the Port of Portland in Oregon with inland
rail yards. The rail link eliminated the need for truck drayage between the port and
the rail yards. CMAQ funds provided $1 million of the $6 million total cost of the
project.41 CMAQ funds also partially financed improvements to Canadian Pacific’s
Bensenville Rail Yard in Chicago. Improvements included reducing rail and traffic
conflicts at grade crossings, new track, interlockings, and signals. CMAQ funds
provided $2.1 million of the $35 million total cost of the project.42
The “Corridors and Borders”program (CORBOR, section 1118 and 1119 of
TEA-21) was established to support planning studies and infrastructure development
at the national border crossings and along major freight corridors. This program has
helped finance the FAST (Freight Action Strategy for the Seattle-Tacoma region)
project which will eliminate 12 grade crossings on access roads to the seaports in this
region. CORBOR funds provided $10 million of the estimated $400 million total
cost of this project.43
A third TEA-21 program, the Railroad Rehabilitation and Improvement
Financing program (RRIF), is intended to make funding available through low-
interest loans and loan guarantees for railroad capital improvements. Improvements
can include “acquiring or improving intermodal terminals, rail facilities, track,
bridges, buildings and shops.”44 However, this program has been slow in getting
underway. As of 2003, less than a handful of loans have been approved.
Railroads may find two provisions in the FRA eligibility requirements overly
restrictive: (1) the requirement that an applicant show proof of at least one loan
denial from a commercial lender that previously loaned the railroad money and (2)
that the railroad provide collateral for recovery of 100% of principal and interest.45
Railway financial observers assert that because revenue inadequacy is at least part of
the problem, a loan or loan guarantee program such as RRIF, that relies heavily on
rail revenue as a source of funds, is not a practical solution.
Although there are examples in which TEA-21 programs have funded
intermodal rail projects, such as those cited above, they are few relative to other
modes. There is a growing sense by some parties that intermodal freight projects
must become more common if increased congestion and inefficiencies in the
transportation system are to be corrected. Some parties suggest that a federal
program be established to regularize funding for these types of projects. There is not
4 1 U.S. DOT, Office of Operations, Freight Finance Report, n.d.
[http://ops.fhwa.dot.gov/freight/freight_analysis/financing.htm].
42 Ibid.
43 U.S. DOT, FRA, Intercity Freight and Passenger Rail: State and Local Project Reference
Guide, April 2001, p. 14.
44 Speech by FRA Administrator Allan Rutter at the American Shortline and Regional
Railroad Conference, Orlando, FL, April 29, 2002.
45 “Congressional Displeasure,” Traffic World, May 7, 2001.

CRS-16
a TEA-21 program designed specifically for freight or intermodal projects. Critics
argue that the present approach significantly delays and complicates intermodal
infrastructure funding.
State and Local Initiatives
State and local governments have also contributed funds for rail projects. The
state of Pennsylvania assisted Conrail in making a number of its lines accessible to
double-stack container trains.46 The state of Delaware is funding the cost of
rehabilitating a train bridge serving the Port of Wilmington. Norfolk Southern
Railroad, which owns the bridge, will reimburse the state through a fee for each rail
car crossing the bridge.
The Alameda Corridor
Another example of a “toll railway” is the Alameda Corridor. It connects the
Ports of Los Angeles and Long Beach with a terminus for the transcontinental rail
network located 20 miles north of the ports. The ports purchased the rail right of way
from the railroads and eliminated 200 at grade road and rail intersections by lowering
the rail track in a ten mile trench and constructing overpasses and underpasses for the
roadways. The railroads will reimburse part of the construction costs to the ports by
paying a per container fee for use of the corridor. The idea for the corridor was
proposed in 1984 by the Southern California Association of Governments (SCAG)
which is the local Metropolitan Planning Organization (MPO). Construction began
in April 1997 and was completed in April 2002.
A broad array of analysts have suggested that the Alameda Corridor is a model
for improving the nation’s freight transportation system that could be repeated at
other major cargo hubs. The key to success for such a project is an alignment of
stakeholder interests, with a strong willingness on the part of rail companies to
participate. Unlike the Alameda Corridor, the Alameda Corridor East (ACE) project
has not apparently had the active participation of the Union Pacific Railroad. ACE
is a project to eliminate grade crossings on rail track extending east from the northern
terminus of the Alameda Corridor.
Policy Options for Congress
Concern about the capability of the railroads to self-finance additional capacity
as well as the financial and environmental constraints of building additional highway
lanes raises several potential issues for Congress as it reevaluates surface
transportation funding programs in TEA-21. The broad policy issue is finding the
right balance between a “market-driven” versus a “policy-driven” approach to rail
investment. Key questions under consideration are: should the federal government
46 For further examples of government assistance for rail projects, see FRA, Intercity Freight
and Passenger Rail: State and Local Project Reference Guide, April 2001. And U.S. DOT,
Office of Freight Management and Operations, Funding and Institutional Options for
Freight Infrastructure Improvements, n.d.

CRS-17
engage in a public-private partnership with the railroads to ensure capacity for
industry growth? Are current funding levels and programs adequate or are new
sources of funding needed? How should government funding be arranged? Should
funding be rail specific or is this an opportunity for a multimodal funding program?
How would projects deserving public aid be identified?
Modal Equity
Despite concerns about capital shortfalls, the North American freight railroads
are arguably the most self-sufficient railroads in the world, freight or passenger.
When considering how government could engage in a more cooperative relationship
with the railroads, many suggest, the railroads first among them, that the government
“first do no harm.” The railroads and others contend that the most economically
efficient policy the government could pursue to assist the pace of railway
development is a mode-neutral transportation policy. If federal funding distorts
modal choice, the nation as a whole, in this view, may pay a larger freight bill than
is necessary. While a subsidized carrier may offer a lower rate, the real cost of
transport may not be lower. The cost difference is merely transferred to others. The
real total cost (the lower rate plus the amount of subsidy) may be greater than an un-
aided competing mode may be willing to offer. While some economists agree that
federal funding should not be biased in favor of or against any one mode, Congress
has not previously adopted modal equity as a policy goal.
One controversial policy option is to refine current modal funding programs so
that all surface freight modes pay the full cost of their infrastructure. According to
a DOT study on highway cost allocation, the heaviest trucks pay only about 80% of
their full cost of highway use.47 According to a CBO report, barges pay only about
10% of the cost of their rights-of-way.48 Proposals for how best to aid rail capacity
are likely to renew debate on the long standing issue of modal equity.
Rail Trust Fund
The railroads are the only transportation mode in the United States that do not
benefit from a federal trust fund. One proposal being discussed is to create a railway
trust fund, analogous to the highway, waterway, and airway trust funds. These
existing trust funds are financed with levies on the users of the transportation system
provided. They vary in the type and combination of surcharges imposed but may
include taxes on fuel, new equipment, cargo waybills, and passenger fares.
The rationale of transportation trust funds is to provide a dedicated pool of funds
for infrastructure projects, thus ensuring a regular, systematic funding stream. A rail
trust fund set up in the manner of the highway trust fund could provide a steady and
predictable source of funds for rail infrastructure projects. A rail trust fund could
47 For further information on truck cost allocation, see U.S. DOT, FHWA, Federal Highway
Cost Allocation Study, 1997, with addendum in May 2000. Available at
[http://www.fhwa.dot.gov/policy/hcas/addendum.htm].
48 Congressional Budget Office, Paying for Highways, Airways, and Waterways: How Can
Users Be Charged? May 1992.

CRS-18
also entice private sector and local government participation by leveraging federal
dollars with contributions from local sources. Federal funds could serve as a catalyst
for getting projects underway.
Critics of a rail trust fund argue that such a program puts the government in a
position of “giving with one hand while taking away with the other.” If the goal is
to shift additional resources to rail improvement projects, some question how taxing
the railroads and then handing it back, with directions on how to spend it, would
accomplish this goal. Decision makers may also consider the impact of a rail trust
fund on rail competitiveness. If rail surcharges increase the cost of rail vis-a-vis
truck or barge, it may divert freight to these competing modes. An additional
concern with a rail trust fund is that once established, it may prove difficult to
terminate if changing economic circumstances invalidate the need for the fund.
Multimodal Trust Fund
Many observers believe that a major obstacle to achieving the goal of a national
intermodal transportation network as envisioned in the Intermodal Surface
Transportation and Efficiency Act (ISTEA, P.L. 102-240) is that the modes are
separately managed and funded. Creating a separate trust fund for rail projects could
reinforce what these observers describe as a stovepipe approach to transportation
planning and finance. Intermodal supporters argue the focus should be on improving
the connectivity and interoperability among modes. Public funding should be
directed at improving the “intermodal connectors,” that is, the roadways or railways
that link to seaports, airports, and rail yards. A resource paper prepared for the
Transportation Research Board noted:
Every Federal reauthorization act for transportation has categorized funding into
discrete programs for specific classes of projects, typically along modal lines.
Because the old modal boundaries are becoming increasingly blurred at critical
nodes and along key corridors, a compartmentalized approach presents clear
challenges to DOT in advancing these important types of investments.49
This raises the matter of how a multimodal trust fund could be financed. Could
funds be generated from an all mode freight surcharge? Could a pool of resources be
generated from a portion of existing trust funds? These are complex policy questions
with no easy answers or consensus among stakeholders.
Modify Existing Programs
Rather than creating additional trust funds, another option being debated is
making it easier for rail projects to qualify for existing highway trust fund (HTF)
financed programs. Federal assistance could, for example, be targeted to rail projects
where the alternative highways are heavily congested. Use of highway trust fund
monies for non-highway projects is a long standing debate. Although ISTEA’s
language encouraged an intermodal approach for solving transportation needs, it did
49 Transportation Research Board, “Planes, Trains, and Automobiles: Multi-modal
Reauthorization Opportunities,” Scottsdale, AZ., Aug. 21, 2000, p. 8.

CRS-19
not mandate it. State DOTs, consulting with Metropolitan Planning Organizations
(MPOs), are given the power and flexibility to decide which projects get funded.
Intermodal freight, particularly rail freight, has not received significant amounts of
funding from ISTEA, nor TEA-21. Intermodalism has largely been a market-driven
rather than a policy-driven development. The real focus of intermodalism in these
laws is that it allowed the use of highway trust fund money more broadly for mass
transit projects.
An advantage of allowing HTF funds to be used for non-highway projects is that
it increases the options of state and local planners in solving their transportation
needs. It should be noted that some state laws prohibit gas tax money being used for
non-road projects. Nevertheless, more options could lead to more cost efficient
systemwide solutions. For example, it could be less expensive to improve an existing
rail line to handle more traffic than to build additional highway lane miles. Another
advantage of this approach is that it maintains the basic program framework created
by ISTEA and TEA-21.
A drawback of using the HTF for non-highway projects is the problem of
“eligibility creep.” Expanding eligibility may dilute the political support for the fund
if the interests benefitting from it are too widely dispersed. Using the gas tax to
support non-road projects could also reduce the “users-pay” principle - the principle
that those who benefit must pay for the cost. The existing gas tax is an imperfect
pricing system, however, because all users do not necessarily pay their full costs. For
example, the fuel tax does not capture the costs of congestion delays and air pollution
and cross-subsidizes certain classes of system users.
Expanding the eligibility of existing programs for rail does not guarantee that
rail projects will be funded. State DOTs and local MPOs may favor highway and
passenger related projects over freight rail concerns. Freight rail projects face stiff
competition from highway and transit needs for limited resources in the HTF. Local
governments may perceive the benefits of freight rail projects as flowing outside their
geographic boundaries. Another downside of increasing availability of HTF dollars
for rail projects is that it may make railroads dependent on public aid to get certain
types of projects underway. Private carriers may then demand government aid on a
routine basis for private infrastructure improvements.
Railway User Charges
Toll railways, such as the examples cited above in Delaware and southern
California, are an alternative solution that some policymakers suggest could be
repeated elsewhere. The advantage is that they overcome the economic hurdle
railroads face with large initial capital outlays for new construction. The initial outlay
is provided with public funds or by a regional transportation authority. The railroads
repay some portion of the construction costs over a period of time. The rate of
repayment is based on traffic volume with a per car user fee. The disadvantage of
this proposal is that it probably can not be applied on a national basis. This option
is more well suited to a geographically limited corridor.

CRS-20
Intermodal Freight Planning
The issue of how an aid program might be arranged raises a related issue of how
projects deserving public support might be identified. A premise of ISTEA and
TEA-21 is that states and MPOs are in the best position to identify and prioritize
transportation projects needed in their area of jurisdiction. However, intermodal rail
shipments are typically broader in scope geographically than the jurisdiction of a
single MPO or state DOT. A significant portion of intermodal rail shipments move
from one region of the country to another if not across the entire country. As
mentioned earlier, half of all intermodal rail loadings are imports and exports.
At issue is how to select freight projects that could optimize the network
nationally with a transportation planning process that is largely decentralized. To
state the issue another way, how can national interests be weighed with local
concerns? Freight stakeholders contend that the existing transportation planning
process results in an incremental approach to solving bottlenecks. Expanding freight
capacity at one node in the network can have adverse repercussions for the
surrounding community of the next hub downstream if additional traffic overloads
their facilities. From a freight stakeholder’s point of view, simply moving the choke
point to the next hub does little to enhance the overall flow of goods. As one
observer noted, you can not fit an 18” pipe into a 9” pipe. On the other hand, if
MPOs or states do not coordinate their activities, they could end up competing with
one another for the same freight business. This could lead to overcapacity.
One option is for MPOs and state governments to work together to create a
regional planning perspective. Some states are already participating in multi-state
studies on corridors that cross state lines. In the reauthorization debate, policymakers
may consider whether to formalize these multijurisdictional arrangements or allow
them to continue informally. Another proposal is to create a “national rail map”
similar to the national highway system identified under the National Highway System
Designation Act of 1995 (P.L. 104-59) that would identify nationally significant rail
corridors and target funding to projects on those corridors.50 This proposal represents
a “top-down” approach to transportation planning in which the federal government
actively identifies and evaluates projects deserving federal support.
Legislative Activity
Several proposals have been introduced in the 108th Congress with the intent
of accelerating the pace of investment in the nation’s rail network. Representative
Lipinski introduced a bill (H.R. 1617), which was referred to the House
Subcommittee on Railroads, to create a rail trust fund to provide a steady source of
funding for rail infrastructure. The bill would finance the fund by redirecting the 4.3
cent per gallon diesel tax from the General Fund to the rail trust fund, impose a one
percent freight waybill tax, redirect a portion of Customs import duties to the rail
fund, impose a five percent tax on rail commuter tickets, impose a five percent tax
on freight and passenger rolling stock sales, impose a five percent tax on locomotive
50 Jeremy F. Plant, “Railroad Policy and Intermodalism: Policy Choices After Deregulation,”
The Review of Policy Research, June 22, 2002.

CRS-21
sales, impose a new Amtrak ticket tax, and redirect a portion of federal oil and gas
royalties to the trust fund. Representative Young introduced a bill (H.R. 2571) titled
the Rail Infrastructure Development and Expansion Act for the 21st Century (RIDE-
21) which was reported by the House Committee on Transportation and
Infrastructure. One provision of the bill particularly relevant to freight rail
infrastructure would expand the RRIF program from $3.5 billion to $35 billion and
make it easier for railroads to qualify for RRIF loans and loan guarantees.
Representative Millender-McDonald introduced the Goods Movement Act of 2003
(H.R. 3398) which was referred to the House Subcommittee on Highways, Transit,
and Pipelines. Among other things, the bill would provide grants from the Highway
Trust Fund to improve truck routes to intermodal freight transfer facilities and
separate railroad and road crossings. Senator Hollings introduced the American
Railroad Revitalization, Investment and Enhancement Act (ARRIVE-21, S. 1961)
which was referred to the Senate Committee on Commerce, Science, and
Transportation. This bill would establish a Rail Infrastructure Finance Corporation,
a non-profit, public-private partnership that would have authority to issue $30 billion
in tax-credit bonds to fund rail infrastructure improvements over a six year period.
The bill also would require the DOT to develop a national rail plan and a “50-Year
Intermodal Blueprint” to promote an efficient transportation system.

Legislation reauthorizing TEA-21 (TEA-LU, H.R. 3550 and SAFETEA, S.
1072), currently in conference, contain several provisions particularly important for
intermodal freight transportation. Both the House and Senate versions of the bill
create an “Intermodal Connectors” program which would set aside a portion of a
state’s highway funds to improve the roads leading to intermodal freight terminals.
Both the House and Senate bills also include language intended to ensure greater
consideration of freight transport in state and MPO transportation planning processes.
The Senate bill requires each state DOT to designate a “freight transportation
coordinator” whose responsibility will be to ensure that freight considerations are
integrated into the planning process, coordinate with other states to solve regional
transportation problems, foster collaboration between public and private interests,
and build professional capacity to better understand freight transportation needs
within a state. The House bill requires the U.S. DOT to establish a “Freight Capacity
Building Program” in order to better target investments in freight transportation
systems and to strengthen the decision making process of state and local
transportation agencies with regard to freight transport. A provision particular to rail
transportation is in the Senate bill and establishes a grant program to assist
municipalities in relocating rail track in order to improve public safety, the flow of
motor vehicle traffic, or for economic development reasons. Under this provision, the
Secretary of Transportation is required to conduct a costs-benefits analysis before
awarding a grant to any particular rail relocation project. The Senate bill also
contains a provision prohibiting the use of highway account funds for rail projects
unless they produce a public benefit.