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Lott, Bipartisan Senators Introduce Incentives Bill to Expand Freight Rail Capacity

From: Office of Sen. Trent Lott    Filed 7/26/06

< WASHINGTON – U.S. Senator Trent Lott of Mississippi, chairman of the Senate’s Surface Transportation Subcommittee, joined by a bipartisan group of eight Senators, today introduced legislation to address the crisis in freight transportation by providing incentives for railroads and shippers to expand their freight capacity.

“With highways and airways becoming increasingly congested, pressure is on the railroads to accommodate the rising tide of freight,” Senator Lott said.  “Freight railroads and railroad shippers could expand their operations – adding second or third tracks, rail spurs and signals – under my legislation, the Freight Rail Infrastructure Capacity Expansion Act.”

Senator Lott’s bill would establish a 25 percent tax credit that would be available to taxpayers making expenditures for new freight infrastructure.  All qualifying rail infrastructure capital expenditures would be eligible for expensing which Lott said provides an incentive for continued investment, even in periods where economic conditions are tight.

Eligibility for the capacity expansion credit and the expensing provision would be available to any taxpayer making a qualified expenditure.  “A shipper, such as a Target or Home Depot, that builds a rail spur from a distribution center to a main line would be eligible for a credit,” Senator Lott said.  “A new truck-rail intermodal facility built by a trucking company also would be eligible.  This is important because the future of our freight transportation system depends on creating an increasingly seamless integration of all modes – rail, trucking, waterway and air. 

Qualifying expenditures would include track, grading, tunnels, signals, certain locomotives, bridges, yards, terminals and intermodal transfer and transload facilities.

 “As our economy grows, our freight systems are under increasing strain,” Senator Lott said. “The Department of Transportation and other experts project freight shipments to grow by about 70 percent between 2000 and 2020.  At the same time, freight rail traffic is being pushed to its limits.”

The Senator said a freight rail investment stimulus is necessary in a time of growing demand for freight service because the industry is subject to unusual market and non-market factors combining to create higher risks and substantial deterrents to investment.

Freight rail is among the nation’s most capital intensive industries, with capital expenditures averaging 17 percent of revenues from 1999 to 2003, compared to 3.4 percent for all manufacturing.  What’s more, Senator Lott said, freight rail is a network industry, and a relatively minor choke point or a slowdown in a remote area can leave to system-wide consequences.

Many factors today dampen freight rail investment, Senator Lott said.  “Major rail infrastructure investments like tracks, bridges and tunnels, involve large fixed costs that have only one use and only in a particular place.  An investment that does not earn an economic return cannot be converted to other purposes or moved to other locations.”

Senator Lott pointed out that the freight rail industry remains subject to significant regulatory and other governmental constraints limiting the industry’s revenues and its ability to earn a market return on investment.

“The nation faces a major challenge in responding to the rising tide of freight traffic,” Senator Lott said.  “It is not just another ‘challenge of the month,’ but a long-term structural problem calling for a vision and response framed in terms of decades.  If we do nothing now, we can expect to pay a growing price – more highway gridlock, more pollution, higher fuel consumption, lost lives, higher shipping costs and slower economic growth.  If we act now, we can create much needed incentives leading to an improved, expanded and more efficient freight rail system.”

Joining Senator Lott as original cosponsors of the Freight Rail Infrastructure Capacity Expansion Act are Senators Kent Conrad of North Dakota, Gordon Smith of Oregon, Mike Crapo of Idaho, Daniel Inouye of Hawaii, Chuck Hagel and Ben Nelson of Nebraska, Johnny Isakson of Georgia and Lindsey Graham of South Carolina.

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