Railroaders, suppliers, contractors, customers, and other short line supporters: Click here for instructions on contacting your Representatives and Senators to support S. 881 and H.R. 1584.
[Editors Note: If you are seeking information on the distinct Freight Rail Infrastructure Capacity Expansion Act advocated by the Association of America Railroads (AAR) please visit the AAR Home Page or visit the ASLRRA Policy Statement in support of that important legislation.]
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Click Here to View supporting documentation: Bill text, co-sponsors, etc.
Support S. 881 and H.R. 1584 – The Short Line Railroad Investment Act of 2007
The Section 45G Railroad Track Maintenance Credit is an important experiment in infrastructure policy that has proven successful. By creating economic incentives for railroads to increase investment in track rehabilitation, and by fostering cooperation between railroads, and their customers, suppliers, and contractors (click for examples), Section 45G has helped create hundreds of millions of dollars of improvements to American’s vulnerable light density freight network.
In order to continue the early successes of Section 45G, and to extend its benefits to all short line railroads, the American Short Line and Regional Railroad Association supports S. 881 and H.R. 1584, the Short Line Railroad Investment Act of 2007. The language of this brief legislation:
The Rationale for Preserving and Improving Section 45G
Extend Section 45G for Three Years
Bill Language:
S. 881 §2(a) (110th Cong.); H.R. 1584 §1(a) (110th Cong.):
a) Extension-
(1) IN GENERAL- Subsection (d) of section 45G of the Internal Revenue Code of 1986 (relating to qualified railroad track maintenance expenditures) is amended by striking 'for maintaining' and all that follows and inserting 'for maintaining--…
'(B) in the case of taxable years beginning after December 31, 2007, and before January 1, 2011, railroad track (including roadbed, bridges, and related track structures) owned or leased as of January 1, 2007, by a Class II or Class III railroad (determined without regard to any consideration for such expenditures given by the Class II or Class III railroad which made the assignment of such track).'.
Explanation:
Section 45G Public Benefits are Worthy of Extension: In 2001 the most conservative studies estimated the need for $7 billion in track improvements to overcome the dilemma facing light density railroads coping with the demand for increased rail car weights. Since the enactment of Section 45G, hundreds of short line railroads rapidly increased the volume and rate of track rehabilitation and improvement programs. For example, the replacement of railroad ties, one of the critical components of handling heavier cars, has increased by half a million ties per year in both 2005 and 2006 as a result of the credit.
By preserving rail infrastructure, Section 45G improves customer service to 12,000 short line-served employers and their 1 million employees. Short line railroads have grown from 8,000 miles in 1980 to almost 50,000 miles today, as large railroads have shed less profitable lines. Without short lines, hundreds of communities would be without rail service. In 2004, short lines used 184 million gallons of diesel to move 10.6 million carloads of freight. Trucks would have required 540 million gallons to move the same freight. Short line railroads save $1.3 billion per year in highway damage costs, and short lines are on average 20% to 50% cheaper than truck transportation, especially for grains and other bulk commodities. The continued existence of short line railroads removes over 30 million truckloads per year from the nation’s highways.
Minimize the Impact of the Alternative Minimum Tax
Bill Language:
S. 881 §2(b) (110th Cong.); H.R. 1584 §1(b) (110th Cong.):
(b) Coordination With Section 55- Section 38(c)(4)(B) of the Internal Revenue Code of 1986 is amended by striking ‘and’ at the end of clause (i), by striking the period at the end of clause (ii)(II) and inserting ‘, and’, and by adding at the end the following new clause:
‘(iii) the credit determined under section 45G.’.
Explanation:
Section 45G, and its inspiration HR 876 / S 1703 (108th Cong.), was intended to maximize track rehabilitation on the nation’s 550 short line railroads. As much as one-third of the credit claimed by railroads is lost to the AMT. The public policy goal of Section 45G was to provide incentives to all short lines to maximize track rehabilitation – that is not occurring because of the AMT.
AMT Eliminates the 45G Incentive: By drastically reducing, or in many cases eliminating the ability to use the credit contemporaneously with qualified expenditures, the AMT has removed the economic incentive for short lines to increase track improvements. Theoretical future utilization of carryforwards does not provide a current year incentive to increase investment.
AMT Hurts Those Most in Need of Help: The AMT falls heavily upon those railroads most in need of infrastructure assistance. The majority of short lines have annual gross revenues of less than $5 million, and over half of companies in the industry gross $2.5 million or less. Data from 2005 indicates that railroads shorter than 100 miles utilized only 52% of earned credits.
AMT Punishes Important Rail Connections: The AMT eliminates the credit without regard to the public benefits railroads provide in terms of mileage, carloads, or customers served and preserved. Many important regional railroads make the largest contribution to serving shippers in their region and yet are denied the credit because of their AMT tax status.
AMT Relief Will Not Dramatically Increase the Cost of Section 45G: The projected revenue impact of Section 45G was $501 million. This assumes nearly complete utilization of $3,500 per mile, over 50,000 miles, for three years ($525 million). Since actual future utilization of AMT carryforwards is highly unlikely on most short lines, the 2004 score may have overstated the actual revenue impact by as much as one-third.
AMT Carry Forward Utilization Is Not an Investment Incentive: The utilization of AMT carryforward credits is theoretical at best since most AMT railroads will have sufficient credits to eliminate future tax liability above their AMT tax. No businessperson will significantly increase track work today to receive little or no benefit in the distant future.
Allow Short Lines Created During 2005 and 2006 To Qualify For Section 45G
Bill Language:
S. 881 §2(a)(1) (110th Cong.); H.R. 1584 §1(a)(1) (110th Cong.):
‘(B) in the case of taxable years beginning after December 31, 2007, and before January 1, 2011, railroad track (including roadbed, bridges, and related track structures) owned or leased as of January 1, 2007, by a Class II or Class III railroad (determined without regard to any consideration for such expenditures given by the Class II or Class III railroad which made the assignment of such track).’.
Explanation:
When Section 45G was enacted, Congress wisely created a cutoff date after which newly created short lines would not qualify for the credit. This avoided the creation of an incentive for Class Is to increase the rate of line sales. However, 20 new railroads totaling 1,300 miles have been created since January 1, 2005. Section 45G provided no incentive for these railroads to be formed. These lines should qualify for the credit provided that a new cutoff date is instituted to prevent the distortion of the economics of future line sales.
Adjust the Credit Limitation
S. 881 §2(c) (110th Cong.); H.R. 1584 §1(c) (110th Cong.):
(c) Credit Limitation Adjustment- Subparagraph (A) of section 45G(b)(1) of the Internal Revenue Code of 1986 is amended by striking ‘$3,500’ and inserting ‘$4,500’.
Explanation:
The increased demand for track materials after the passage of Section 45G may have created moderate price increases for some materials. However, a worldwide spike in steel prices has occurred. As railroads strive to increase rail weights in an inflationary world steel market, less track improvement work can be accomplished. An upward adjustment of the credit limitation will help to offset these global trends that threaten to reduce the amount of track improvement accomplished by Section 45G.
Increasing the mileage based credit limitation will also bring Section 45G more in line with the objectives of the proposed language of HR 876 / S 1703 (108th Cong.) which proposed a $10,000 per mile credit limitation combined with a 100% credit.
S. 881 and H.R. 1584 supporting documentation: White papers, co-sponsor lists, bill language, statute text, etc.
Railroaders, suppliers, contractors, customers, and other short line supporters: Click here for instructions on contacting your Representatives and Senators to support S. 881 and H.R. 1584.
