The short line freight railroad tax credit is good public policy

Short line and regional freight railroads are an American success story connecting the rural and industrial heartland to the national rail network, creating jobs and sustaining communities.  Developed predominantly out of marginal lines that would otherwise have been abandoned by larger Class I railroads, short lines and regional railroads, or Class II and III railroads, are the collective “little engine that could” - 603 workhorses that are often the first and last mile connecting local communities to the vast U.S. rail network. Short line railroads operate 47,500 rail miles, or 29 percent of the national network.

The short line tax credit, known by its tax code reference as “45G”, has spurred $4 billion in private infrastructure investment since its inception in 2005. The credit enables the industry to meet its very significant investment needs, allowing these small business railroads to invest their earnings back into maintenance and upgrading of tracks and thousands of bridges to ensure safe and efficient operations for their companies and customers. The improvements made because of the credit have in part led to the industry’s first fatality-free year (2017).

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In a time when new funding for infrastructure development is being hotly debated, the short line tax credit is already sound tax policy, allowing our industry to do its fair share toward improving the nation’s infrastructure through a public-private partnership proven to spur investment. Its extension will allow short lines to continue their success story in rural, industrial and agricultural America.

The short line tax credit maximizes private investment in important transportation infrastructure. The railroad must spend two dollars for every dollar in credit, up to a cap of $3,500 per mile of track. The credit allows small railroads to invest more of their own earned revenue in capital improvements. This additional spending power allows short line railroads to speed up projects that are in the works and take on new projects that would otherwise be unaffordable.

45G has overwhelming bipartisan support. In the current Congress, the bicameral BRACE Act, which calls for permanence of the short line tax credit, has 250 co-sponsors in the House, and 55 in the Senate, where it was the most co-sponsored piece of federal tax legislation offered in 2017.

The credit expired at the end of 2016. However, due to the credit’s strong bipartisan support and wide-ranging impact on the U.S. freight rail system and its thousands of customers, Congress is now looking to extend the credit through 2018 as part of the tax extenders bill that was introduced in the Senate in December. Short line railroads and the thousands of shippers and communities that depend on them urge Congress to finalize this process and get the credit extended.

The short line tax credit drives economic and employment growth beyond simply the railroads - investing in better track spurs new investment by railroad customers. For example, in South Dakota the improvements made by the 670-mile Rapid City, Pierre & Eastern Railroad since it began operations in 2015 have already attracted over $311 million in new facility investments by six South Dakota companies. Those facilities employ 260 workers. This result is being duplicated in the 49 states that are served by America’s 603 short line railroads.

Railroad rehabilitation creates skilled jobs, particularly in rural locations. The Federal Railroad Administration estimates that half of every dollar spent on short line track rehabilitation goes to pay workers. These are good paying construction and manufacturing jobs that put paychecks in the hands of an American labor force that has been left behind in the past decade.

In closing, railroads are an all-American proposition. They can’t take their operations or their jobs overseas. All their taxes are paid domestically. Virtually everything they buy to improve their infrastructure – the ties, the steel rail, the ballast, the locomotives and the freight cars – are made in America.

Allowing these small business railroads to spend more of what they earn to grow their businesses and invest in their community’s success is what the short line tax credit does. The short line tax credit, 45G, answers the call to improve the nation’s infrastructure. It is good public policy that promotes economic growth, helps create jobs and invests U.S. business profits in U.S. made goods.

Linda Bauer Darr is the President of the American Short Line and Regional Railroad Association.