Hearing of the House Committee on Ways and Means, Subcommittee on Select Revenue Measures - Long-Term Financing Options for the Highway Trust Fund, Including Member Proposals

Statement

Hearing of the House Committee on Ways and Means, Subcommittee on Select Revenue Measures - Long-Term Financing Options for the Highway Trust Fund, Including Member Proposals

Statement of The Honorable Jerry Moran, a Representative in Congress from the State of Kansas

Testimony Before the Subcommittee on Select Revenue Measures
of the House Committee on Ways and Means

Chairman Neal, Ranking Member Tiberi, and Members of the subcommittee, I appreciate the opportunity to speak on behalf of the short line railroad rehabilitation tax credit. The tax credit was originally enacted for a three year period beginning in 2005 and extended for two more years in 2008. The credit expires at the end of this year and Congressman Pomeroy and I have sponsored H.R. 1132 to extend the credit for an additional three years.

The importance of the short line railroad industry is in who and where they serve. America's 500 short lines operate nearly 50,000 miles of track, or almost a third of the national railroad network. For large areas of the country and particularly for rural states short lines are the only connection to the national railroad network. For the small businesses and farmers in those areas, the short line's ability to take a 25-car train 75 miles to the nearest Class I railroad interchange is just as important as the Class I's ability to attach that block of traffic to a 100-car train moving across the country. My Kansas grain farmers cannot make the journey to export markets in the Gulf without Class I railroad service. But they can't start the journey without short line service.

And short lines do not serve rural areas exclusively. Indeed all but one Member of this subcommittee has one or more short lines operating in his or her district.

The majority of short lines are created by entrepreneurs who purchase the marginal or money losing lines of the Class I railroads. Much of this track would otherwise be abandoned and most of it could not justify much investment by the previous owners. As smaller, local businesses, short lines have been very successful in turning these into profitable lines on a P&L (Profit and loss) basis. But they serve small customers that do not ship in volumes large enough to fund the enormous cost of eliminating this deferred maintenance. Today, short lines reinvest on average nearly 30 percent of their annual gross revenues in repairing and upgrading their infrastructure. Even with that, government and private studies indicate that the unmet infrastructure needs on all US short lines run between $10 and $13 billion.

The short line tax credit provides 50 cents for every dollar the railroad invests in track rehabilitation up to a credit cap equal to $3,500/mile of track owned by the company.

It has leveraged hundreds of millions of dollars of private investment in vulnerable railroad infrastructure. The National Railroad Tie Association estimates that the credit has allowed short lines to purchase and install 750,000 ties/year over and above their normal annual purchases.

Let me give you a couple of important reasons for extending the short line tax credit.

First, the primary beneficiaries of the credit are railroad shippers. When their short line railroad upgrades track they receive faster, safer and more competitively priced service. Most important, they can utilize the newer heavier load railroad cars that are becoming the standard for the Class I industry. These heavier cars require a much stronger track structure and if the short line track is not upgraded to handle them, the shipper must sent his product by truck to the nearest Class I railroad. Attached to my statement is a sampling of shipper testimonials that speak to these benefits and I hope Members can take the time to briefly review those statements.

Also, in today's recession, short line rehabilitation creates jobs and does so immediately. Most short lines do not have the in-house manpower to undertake rehabilitation projects and must hire contractors and laborers to do the work. Short lines are constantly installing new rail, ties and ballast, the amount limited only by funding availability. If extra work becomes available tomorrow, the work gang that is currently installing ties and rail between milepost A and B would be hired to keep going to milepost C. Because virtually all short line capital investment is made on existing company owned right-of-way there is no regulatory or environmental delay.

When the tax credit was originally introduced it attracted 268 co-sponsors. As of today we have 120 co-sponsors on H.R. 1132 and are collecting more each day. I hope you will include this measure in whatever legislative vehicle is available before the credit expires this December.

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