Infrastructure policy for the taking: Short line tax credit

The Senate Commerce Committee this week will pick up where the House Transportation and Infrastructure Committee left off last week, debating the viability of major infrastructure legislation. The primary focus will surely be revenue — ways to generate it for both public and private investment.

While just one part of the transportation network, privately owned freight railroads of all sizes play an outsized role in moving goods and alleviating deterioration of public roads and bridges. To ensure the industry can continue to invest privately for the future, transportation leaders should urge their tax writing colleagues in Congress — who are holding a hearing Wednesday on a host of tax policies — to make the short line railroad tax credit permanent. 

{mosads}One subject of Wednesday’s hearing on tax extenders, the short line tax credit — known as “45G” — has spurred $4 billion in private infrastructure investment among short line railroads since its inception twelve years ago. These short line railroads provide critical first and last mile service to major “Class I” carriers, which have invested $100 billion in its network the past four years alone in their own right.

The credit — available exclusively to short line railroads — enables these small businesses to meet the significant investment needs associated with safely running a railroad. 

Railroads are sometimes referred to as an outdoor assembly line, a manufacturing sector serving other manufacturers, as well as farmers, retailers and builders. Private investment is at the core of this, as the industry, on average, invests six times more of revenue on capital and maintenance expenditures than the standard U.S. manufacturer. The short line tax credit is essential to allow short line railroads to invest more of their earnings back into maintenance and upgrading of tracks and thousands of bridges.

In 2017, short line railroads enjoyed their first ever fatality free year, an accomplishment that no doubt correlates with the commitment the 600-plus carriers made to maintaining quality infrastructure across their collective 47,500 miles of track. Large carriers also enjoyed a strong safety record last year, setting records for the lowest track-caused and human-caused accidents ever. 

Indeed, in a time when new funding for public infrastructure development is under consideration, the short line tax credit is already sound tax policy and enshrining it into law ought to be simple compared to thornier tax and transportation funding issues. Extending the credit and ultimately making it permanent will allow short line railroads to continue their success story in rural, industrial and agricultural America. The entire 140,000-mile network will be healthier as short line railroads are empowered to expedite projects and embark on new ones that would otherwise be unfeasible.

Local businesses also enjoy the certainty associated with the credit. 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 short line railroads, which major railroads value greatly as transportation partners.

Thankfully, 45G has overwhelming bipartisan support. The credit has been extended six times over twelve years. In the current Congress, the bicameral BRACE Act, which calls for permanence of the short line tax credit, has a staggering 254 cosponsors in the House, and 56 in the Senate, where it was the most cosponsored piece of federal tax legislation offered last year. 

It is sensible public policy that promotes economic growth, helps create jobs and invests U.S.-business profits in U.S.-made goods. Now is time for Congress to make it the law of the land.

Linda Bauer Darr is the president of the American Short Line and Regional Railroad Association. Edward R. Hamberger is president and CEO of the Association of American Railroads.