June 24, 2021

tacere

Beauty Made Perfect

Renewed Consumer Relevance of the General Railway System

  • Class I, Commuter/Regional, Freight, Freight Forecasting, High Performance, Intercity, Intermodal, News, Passenger, Short Lines & Regionals, Switching & Terminal


Written by

Virgil Payne

Your trance breaks as a red wash extends past the hilltop. Auto-cruise kicks out as drivers veer wildly. This is said to be the cheapest for society, so tough it up, though still—surely there is a better way to organize the supply chain as you call to reschedule the gate appointment with the dispatcher. This highway is way over capacity for these increasingly frequent lane closures for deep pavement shear repairs – congestion is back.

You recall, too, your vacation trip where the search put 500 miles at seven-some hours, nearly as long as the few remaining pricy connecting regional flights. But when you left around lunch with your family the reality that the average speed is much lower became clear with dinner, coffee stops, and a similar backup pushing rest past midnight—surely there is some way to keep moving while you read, rest, eat, or now find a ready restroom. Could the United States promote true resource efficiency for freight and persons over an entire trip guided by a refined surface transportation financial metric that provides an amicable tradeoff to investor held railroads?

Questions From a Half-Century Past

Instead of the creative destruction prescribed for railways a half-century ago what could we accomplish in a pivot to a creative restoration mindset much as dieticians reversed earlier prescriptions of low-fat inevitably high sugar foods to a reinvented egg[1] breakfast to build health?

The prevailing freight hypothesis of cost and scope control was born then as funding resilient infrastructure was secondary as high-value rail freight left at the pre-Staggers regulated prices all while the first Interstate-era Highway Cost Allocation Study[2] predicted rail market stagnation and advocated for non-user funds for economic gains. Industry wants a reliable partner in upswings, adding value to the manufacturing and distribution process, but recapitalizing urban interchanges is challenging for shareholders. Can we accept poor national outcomes when Below-the-Rail infrastructure[3] is funded with just the leftovers after variable costs set in the Staggers Rail Act deregulatory conciliation prize while much public investment flows elsewhere?

The prevailing passenger hypothesis then and now was of short-haul intercity rail, articulated perhaps most clearly in The Economics of Passenger Trains[4] which proposed more frequent trains with denser seating and fewer amenities competing on an operating cost below air and auto—though with less consumer time-utility—comingled later with plans of separate high-speed rail lines. But both need a bucket of capital that the United States Department of Transportation (USDOT) largely justifies with Vehicle Travel Time Savings (VTTS) economic metrics set near the wage rate—three times what people will actually pay in revealed preference toll highway transactions to save time[5]. Can efficient investment occur when federal general funds have been scarce to convert these economic metrics into financing without programmatic federal rail funding?

Answers in Understanding Highway Trust Fund Leveraging

Few policy gurus then internalized that public highways recover little financial cost marginally from consumers when applying normalized ratios of damage to the present budget instead of long-term cash flows—nor do they now—as for these higher grade roads a little understood leveraging of around ten cents per person-mile[6] exists from taxing the unrelated daily use of a broad base of locally funded streets to fill the Highway Trust Fund (HTF). This insight comes from a financial cash flow analysis of six-decades of Interstate Highway data in Attachment A, originally conducted to set a stable highway reinvestment benchmark for new federal general funds as leveraged fuel taxes fall shorter still. The analysis challenges the user-fee narrative such that it could only hold if counterintuitively local streets are defined as highways along with property taxes and parking.

Certainly a reality check is needed in federal surface transportation policy though railroads have long called[7][8][9][10] for such modal equity. But calls for highway Vehicle Miles Traveled (VMT) funding is politically challenged[11]as it would differentiate[12] if set properly at a long-run average cost instead of leverage. The answer for a competitive General Railway System might not be Trust Fund buckets—with project approval strings—but a mostly variable federal Tax Credit, equivalent[13] per operated freight unit-mile and person-mile to the existing leveraged highway cost gap which includes public large-accident cost assumption. This could encourage higher-performance freight and passenger operations and reduced paperwork, allowing for distributed decision making as a second-best to a free market where none can exist due to fuel tax leveraging.

The General Railway System: Toward Renewed Consumer Utility

Can such a grand bargain[14] be had benefiting shareholders, shippers, and travelers with Federal Tax Credits?

If these tax credits are attached to an operational metric, the best fungible mix of capital and maintenance projects can be selected by engineers yielding the lowest long-run average cost for our superannuated shared-use infrastructure perhaps using the metrics outlined in Attachment B that surely could be refined further. Certainly these Tax Credits would be no bonanza—but they are estimated to tip shareholder decisions toward fluid infrastructure expansion—netting greater public good over forgone taxes when efficiently coupled with simple filings and single year buy-ins befitting the coverage of only a small portion of total railroad costs. They might also spur convergence between small operational changes and infrastructure investment that is hard to mediate in a grant funding agreement.

Intermodal and Industrial Access Freight Rail 

Some say Precision Scheduled Railroading (PSR) is “sweating the assets”—using existing infrastructure to serve only traffic with the highest return in the short-term without expanding infrastructure to serve other profitable business. Yet this conflicts with the need for a network of container lanes to make the product ubiquitous enough that over-the-road equipment is available for immediate loading. Much has been written regarding the overwhelming proportion of intermodal drayage cost from terminal to destination over shorter hauls but not much on value to shippers. Simply being able to say consign intermodal freight to the proper quadrant of Chicago, Atlanta, or Dallas away from highway congestion would be a massive value-add.

Figure 1 – Price vs Intermodal Length of Haul – Existing Market vs With Highway Equivalent Tax Credit

Since the highway equivalent intermodal freight Tax Credit is nearly equal to the long-run average cost of adding mainline railroad capacity through new sidings[15] or staging yards it could pull down the profitable length of haul for a PSR shareholder, increasing the network nodes, volume, and mainline fluidity.

To Environmental Social Governance (ESG) shareholders substituting for highway truck trips, burning twice the fuel and more as rail, while improving highway safety should have greater appeal than just converting rail fuel types. Similarly for carload freight, the Industry Access Preservation Railroad Ton-Mile and Property Tax Credit would induce shareholders to keep through routes open for routing and network efficiencies benefiting the development of domestic industry, communities, and labor forces dependent on timely, resilient, and efficient distributed commodity flows integral to a stable society.

Corridor and Commuter Passenger Rail

Corridor passenger trains serving large cities are typically the most efficient way to expand peak-hour person-trip capacity, warranting support of Below-the-Rail infrastructure by an urban Weighted Passenger metric. However, route design is often focused on in-vehicle speed instead of total trip evaluations. A consumer’s utility of time could be more efficiently served with route extensions past the center or a continuing distribution loop around a city rather than increasing mainline speeds[16]. Imagine Amtrak extending Acela operations through to Reagan National airport then Alexandria and the USDOT promoting a new elevated railroad distribution loop along the Washington DC beltway or through Boston saving travelers a half-hour of access time before rejoining the NEC mainline instead of 160 mph upgrades saving just a few in-vehicle minutes.

More than half of the automobile vehicle miles traveled on Interstate Highways are actually daily commuting trips lumped into nationally significant project funding. Clearly an equivalent Below-the-Rail commuter rail infrastructure investment should be provided for routes over 50 miles to encourage incremental extensions—using the same equipment—to serve shorter intercity travel as workers disperse to smaller cities around large metropolitan areas but still return to the home office on occasion. Since the Tax Credit is proposed to be transferable, these railroads could partner with real estate developers in Public Private Partnerships (P3) where the private partner would manage station and onboard amenities all the way down to more comfortable seats. These infrastructure investments in urban area General Railway System infrastructure would also aid off-hour freight terminal fluidity and interchange to the benefit of our industrial economy.

Current and Future National Passenger Rail

Longer National routes have great overlooked potential. They are far safer than even semi-automated highway travel[17], justifying a public investment in Below-the-Rail infrastructure at an equivalent rate to the leveraged highway cost gap—converted from a person-mile to a train-mile metric – inclusive of contributing more to mainline capacity upgrades beyond solely related and service quality based track compensation[18]. Greater volumes could be had by supporting consumers with zip to zip code trip searches that pair shorter efficient automobile access to new parkway stations with the productive use of non-driving time on a longer middle rail segment. Consumers seek such whole trip Time-Utility – the productive use of in-vehicle time not just in-vehicle speed – as even rural highways are frustratingly increasingly congested. However, The Economics of Passenger Trains study ignored the efficiency to be had in greater revenue volume per train-mile from overlapping city pairs and product lines needed to serve dispersed intercity trips.

Nothing prevents people along corridors from using a two or three times daily long-distance service for trips of 200 to 1000 miles, but reserved space needs to be emptied, cleaned, and ready for the next overlapping city pair or coaches added at an early morning stop to serve peak demand into large cities. Belly-cargo rates have soared as flights are dropped. Investment in mature automated pallet shuttles[19] to rapidly unload sidelined baggage cars could counter balance such cycles with a single pallet en-route sort service at team driver speeds. The routes could be re-engineered as efficient star-shaped networks with through-car interchange at the center—instead of shorter segmented corridors—for denser overlapping revenue. The branching 16 car Caledonian Sleeper[20] or the crossing ÖBB Nightjet[21] overnight routes are a window to generating volume on price segmented tiers of coach and private sleeper rooms priced near business auto reimbursement rates[22].

Illustrating the Difference: Parsing Amtrak’s Below-the-Rail Infrastructure Costs

Amtrak has long sought survival in a federal policy blind to highway trust fund leveraging, reporting Route level Operational Earnings in the red chart that largely exclude 1 ½ Billion[23] of NEC infrastructure costs[24] though federal law requires allocation[25]. While the NEC is treated consistent with highway and aviation policy the National Network should be treated similarly with costs parsed between Below-the-Rail Infrastructure and Above-the-Rail Operations there too so as not to assign as operational costs[26][27] the infrastructure costs for shareholder owned track or public terminal use. Allocating fixed infrastructure costs to routes obscures resource efficiency as demonstrated in the Above / Below-the-rail cost analysis in Attachment C as well as in the following figures. This explains why cutting around 33% of total and 50% of long-distance train-miles was estimated to generate but 10% operational cost savings and little capital savings[28].

Reorganizing in this manner would have Amtrak’s Long-Distance—Route Variable Costs covered as infrastructure investment, freeing prices to reset and efficiently grow volumes[29] to dilute operational fixed costs, setting the stage for consumer revenue to cover Above-the-Rail operations and equipment costs with only minor local (station area) sponsorship of station buildings and crossings. Importantly with such an arrangement the operator would have a very good shot at a profit—giving motive to advance service innovation and delivery—as the infrastructure costs would be borne by Tax Credits in the same proportion as highways.

Figure 2 – Amtrak Operations Centered Presentation using semi-EBITDA[30] for FY2018 and Gap in All Business Totals. Figure 3 – Extended Fungible Capital and Operations Analysis of FY2018 Amtrak to find true Resource Efficiency

This amicable solution can be found for Amtrak as nearly all of the FY18 & FY19 federal grant actually went to the green highlighted Below-the-Rail facilities infrastructure, security, and risk costs as seen in Attachment C. Further, a NEC freed of trying to finance fixed infrastructure through tickets could attract greater volume at a lower price point with regional trains scheduled to call at more stations to provide greater congestion relief while price segmenting the higher fare Acela product. Nationally, as we see airlines talk about pulling out of low-volume cities really the National Network trains are the competitors to short-haul aviation and highways for 200-1000 mile trips as seen in the distance charts in Attachment D.

Tax Credits, An Amicable Solution

The provision of the proposed infrastructure Tax Credits in a long-term reauthorization may provide the most effective way to provide for stable investment for a fluid rail freight network, incentivize passenger rail service restoration and network growth, and provide additional federal infrastructure funding to cover the commuter and corridor gaps. Magically once off-budget these Tax Credits will likely never be spoken of again much as few think of Interstate Highways paying no property tax.

After a half-century of partial reform the United States could structure General Railway System incentives to achieve much broader consumer relevancy and industry support through a targeted infrastructure tax credit equal to leveraged highway funding to reinvigorate one of the nation’s first P3 arrangements—the railroads.

Virgil G. Payne is a professional engineer supporting high volume manufacturing—where fixed and variable cost functions must be understood—that is reliant on both highway and railway logistics. Previously he supported his state DOT coordinating mostly highway projects, such as I-269 from planning to construction. This work followed a period of designing infill buildings, sites, and utilities and a brief stint in railroad operations, yielding a perspective from both sides of the fence on customer needs and transportation projects. The position taken is entirely his own as a call to begin talking consistently about financial costs in order to provide reform to the surface transportation system design and funding mechanism for true resource efficiency.

Attachments

Endnotes

[1] Leonard, Jane, Can Eggs Help you Lose Weight, October 18, 2018. <https://www.medicalnewstoday.com/articles/323251>.

[2]Department of Commerce. “Final Report of the Highway Cost Allocation Study, transmitted pursuant to Section 210 of the Highway Revenue Act of 1956 (70 Stat. 387), as amended by Section 2 of the Act approved August 28, 1958.” 1961, p. 279. <https://babel.hathitrust.org/cgi/pt?id=ien.35556021232335&view=1up&seq=299>.

[3] Below-the-Rail Infrastructure – Facilities, mainline tracks, bridges, turning and staging yards, signaling, platforms, risk, security, and management of such similar to the public funding divisions for highways and aviation in the United States

[4] Keeler, Theodore E. “The Economics of Passenger Trains.” The Journal of Business, vol. 44, no. 2, 1971, p. 148–174. JSTOR, Accessed July 2020, <www.jstor.org/stable/2351659>.

[5] Revealed preference studies indicate $5 per hour as the amount most consumers using a given corridor are willing to pay to save travel time relative to the U.S. Department of Transportation value of $19 per hour. “Another reason for the low Value of travel Time-savings…is that only a small percentage of trips by transponder-equipped vehicles, approximately 7 percent, chose to pay…. For those 7 percent of trips, the average VOT was $39.65 per hour, a fairly high willingness to pay. However, when combined with the 93 percent of travelers not willing to pay the toll, the average VOT dropped to between $1.96 per hour and $8.06 per hour.” Mark Burris, Cliff Spiegelman, A. K. M. Abir, and Sunghoon Lee, “Travelers’ Value of Time and Reliability as Measured on Katy Freeway, Final Report,” PRC 15-37 F, Texas A&M Transportation Institute, Transportation Policy Research Center, September 2016. p. 18. <https://static.tti.tamu.edu/tti.tamu.edu/documents/PRC-15-37-F.pdf>. 

[6] Payne, Virgil, “Reforming Surface Transportation for Long-Term Sustainability”, Competitive Enterprise Institute, Issue Analysis 2020 No. 10, November 2020. <https://cei.org/news_releases/report-urges-reforming-surface-transportation-for-long-term-sustainability/>.

[7] United States Senate, “Problems of the Railroads : Hearings before the Subcommittee on Surface Transportation of the Committee on Interstate and Foreign Commerce, Eighty-fifth Congress, second session”, 1958. <https://babel.hathitrust.org/cgi/pt?id=umn.31951d03505322l&view=1up&seq=241>.

[8] The America’s Sound Transportation Review Organization (ASTRO)—Program of Creative Federal Involvement, The Rocket, September/October 1970, <https://books.google.com/books?id=QxNmAAAAIAAJ&pg=RA33-PA8&lpg=RA33-PA8&dq=ASTRO>.

[9] Railway Age, “ASTRO’s Bold Blueprint for Tomorrow”, 1970.

[10] Association of American Railroads, Jefferies, Ian, “Hearing on Passenger and Freight Rail: The Current Status of the Rail Network and the Track Ahead”, October 21, 2020. < https://www.commerce.senate.gov/services/files/C7C6392C-E283-4A93-9C02-C85F17E6834B>.

[11] Wehrman, Jessica. “Increasingly Irrelevant Gas Tax Awaits a Better Idea.” Roll Call, March 2021. <https://www.rollcall.com/2021/03/11/increasingly-irrelevant-gas-tax-awaits-a-better-idea/>.

[12] Wehrman, Jessica. “Industry Girds for Fight Against Trucks-only Miles Traveled Tax.” Roll Call March 2021. <https://www.rollcall.com/2021/03/18/industry-girds-for-fight-against-trucks-only-miles-traveled-tax/>.

[13] Proposed Federal Transferrable Tax Credits—$21.0 per intermodal freight for first 800 miles and $17.2 per passenger train-mile, $0.008 per each Industry Access Preservation Railroad Ton-Mile, 100% of State and Localities Property Taxes paid on Linehaul Facilities Infrastructure, and $3,400 Million annually prorated by the Weighted Railroad Passengers Ratio for Large MSA Facilities Infrastructure – See Attachment B

[14]This article provides an overview of the bargain while a further analysis of the costs and benefits with worked examples is found in the white paper, Payne, Virgil, “National Railway Infrastructure Plan for Shareholder and Publicly Held Railways,” 2020. <https://www.scribd.com/document/443778048/National-Infrastructure-Plan-for-Shareholder-and-Publicly-Held-Railways>.

[15] Highway revenue gap equivalent tax credit of $21.0 per intermodal freight train-mile relative to an estimated average cost of $14.6 per train-mile for a $12 million siding added on 18 mile intervals ($12,000,000 x 0.08 discount factor ) / ( 365 x 10 average extra trains per day x 18 miles )

[16] Alex Lu, Dalong S. Shi and Carl D. Martland. “The Vital Role of Metropolitan Access in Intercity Passenger Transportation.” MIT, 2002. <http://www.mit.edu/~uic/metro-TRBv3.6.1.pdf>.

[17] Even Advanced Driver Assistance Systems (ADAS) only reduce crashes by around 25% for automobile travel on Interstate highways that are about 8 times more dangerous than travel on National Network trains per the National Safety Council. For ADAS real world studies see: Insurance Institute for Highway Safety, Advanced Driver Assistance, Accessed September 2020. <https://www.iihs.org/topics/advanced-driver-assistance>.

[18] The proposed Tax Credits would fund around 6 new long sidings on the General Railway System per year.

[19] Interlake Mecalux, “Automated Storage and Retrieval Systems—Pallet Shuttle”, 2020. <https://www.interlakemecalux.com/automated-storage-retrieval-systems-asrs/pallet-shuttle>.

[20] <https://www.transport.gov.scot/public-transport/rail/caledonian-sleeper-franchise/>.

[21] ÖBB Nightjet in 2020 enlarged their new equipment orders to (33) 7 car pairs of mixed sleeper, coach, and individual pod coach-sleepers for their expanding overnight network, see: <https://www.railjournal.com/passenger/main-line/obb-to-order-more-nightjet-trains/>.

[22] The business Internal Revenue Service rate of $0.575 per automobile mile to which half a night hotel cost could be added for comparison

[23] The infrastructure cost for just the NEC and NEC Branches is roughly $1.5 billion annually of Amtrak’s $1.9 billion in Below-the-Rail infrastructure costs, comprised of Infrastructure Asset Line—Steady State Program costs of $374 million for Track, $424 million for Bridge and Building, $97 million for Electric Traction, and $111 million for Communication and Signaling from: Amtrak, Five Year Infrastructure Asset Line Plan, FY2020 to FY2024, 2019. <https://www.amtrak.com/content/dam/projects/dotcom/english/public/documents/corporate/businessplanning/Amtrak-Infrastructure-Asset-Line-Plan-FY20-24.pdf>. To this value is added an estimated $500 million NEC portion of facilities infrastructure support, station, risk, policing, and environmental that is logically Below-the-Rail infrastructure from the APT breakdown in Appendix C.

[24] “Part of the reason that services on the Northeast Corridor appear more profitable… is Amtrak treats a significant portion (60 percent) of the cost to maintain track in the Northeast Corridor as fixed cost and therefore excludes them for the measures of avoidable (Ed. Operations) costs.” US Government Accountability Office, “Financial and Operating Conditions Threaten Amtrak’s Long-Term Viability”,1995. <https://www.gao.gov/products/RCED-95-71>.

[25] US CODE TITLE 49—TRANSPORTATION, SUBTITLE V—RAIL PROGRAMS, PART C—PASSENGER TRANSPORTATION, §24318. Costs and revenues (a) Allocation.—Not later than 180 days after the date of enactment of the Passenger Rail Reform and Investment Act of 2015, Amtrak shall establish and maintain internal controls to ensure Amtrak’s costs, revenues, and other compensation are appropriately allocated to the Northeast Corridor, including train services or infrastructure, or the National Network, including proportional shares of common and fixed costs. <https://uscode.house.gov/view.xhtml?req=granuleid%3AUSC-prelim-title49-chapter243&edition=prelim>.

[26] “How Do Long Distance Trains Perform Financially?”, Amtrak, Accessed October 2020. <https://www.amtrak.com/content/dam/projects/dotcom/english/public/documents/corporate/position-papers/white-paper-amtrak-long-distance-financial-performance.pdf>.

[27] Amtrak states—“15 long distance (over 750 miles) routes… receive a disproportionate share of Amtrak’s federal funding because they account for most of Amtrak’s operating losses ($475 million in FY 2019) and the federal government is their only source of capital funding…” yet does not mention federal funding of unallocated NEC infrastructure costs of almost three times this amount – See: Amtrak, “Stakeholder FAQs”, Accessed 2020. <https://www.amtrak.com/about-amtrak/amtrak-facts/stakeholder-faqs.html>.

[28] Operational Expenses estimated to be $3026 Million in FY21 versus $3352 Million in FY19 with no change in Capital, “Amtrak FY2021 Supplemental Grant Request”. May 25, 2020. <https://www.amtrak.com/content/dam/projects/dotcom/english/public/documents/corporate/reports/Amtrak-FY2021-Supplemental-Grant-Request.pdf>.

[29] Passenger trains have a declining average cost curve with respect to increasing volume on each train

[30] EBITDA is currently in vogue—Earnings before Interest, Taxes, Depreciation, and Amortization—but is somewhat incomplete when infrastructure is involved as it strips out the cost of capital investments like property, plant, and equipment when owned but not when expensed to operations hence the call for a clear division between infrastructure and operations to find a balance between capital and expense work

Categories: Class I, Commuter/Regional, Freight, Freight Forecasting, High Performance, Intercity, Intermodal, News, Passenger, Short Lines & Regionals, Switching & Terminal
Tags: Opinion