11

Legislative UpdateACACSO Convention

Kansas City, MO

Ed McKechnie

May 13, 2010

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1. Short Line Tax Credit2. STB Reauthorization3. Positive Train Control4. Truck Size and Weight5. As Of Today…

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45G Tax Credit - Status

• 45G Expired on Dec. 31, 2009.• One-year (Tax Year 2010) extension of 45G

included in H.R. 4213 – “Extenders Package”.• House passed H.R. 4213 on Dec. 9, 2009.• Senate passed H.R. 4213 on Mar. 10, 2010.• H.R. 4213 could be “conferenced” to resolve

differences.• Chairman Levin wants to see action on bill “in

this work period” (i.e. before Memorial Day).

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45G Tax Credit – Status (cont.)

• Problem: Congressional rules require tax credits to be “paid for.”

• “Solution”: Raising revenue elsewhere to pay for tax reductions like 45G.

• Additional Problem: To pay for a one-year extension of all expiring tax provisions requires finding $30 BILLION in “new” revenue.

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45G Tax Credit – Status (cont.)

45G Tax Credit “scores” (i.e. “costs”)$165 million for each year extended

45G = $165 million

Total “Extenders” = $30 billion

COBRA Premiums = $9.9 billion

Other Health Care = $14.4 billion

Federal Medical Adjustment Percentage (FMAP) = $25 billion

Unemployment BenefitExtension = $61 billion

Total Cost of H.R. 4213 = ~$140 billion

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45G Tax Credit – Status (cont.)

45G = $165 million

Total “Extenders” = $30 billion

COBRA Premiums = $9.9 billion

Other Health Care = $14.4 billion

Federal Medical Adjustment Percentage (FMAP) = $25 billion

Unemployment BenefitExtension = $61 billion

Total Cost of H.R. 4213 = ~$140 billion

$110 billion is “EmergencySpending” that does not

“need” to be “paid for”

$30 billion “Tax Extenders”portion must be “paid for.”

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Topic 2 – STB ReauthorizationThe issue formerly known as: “Rereg”

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Meanwhile, back at the ranch…

• Sen. Rockefeller has introduced S. 2889• Senate Commerce Committee unanimously

“reported” S. 2889 on Dec. 17 with no Republican votes against

• Sen. Brownback (R-KS) and Sen. Snowe (R-ME) have expressed concern re: short line impacts

• Sen. Rockefeller has promised those Senators that he will “work on” short line concerns

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STB Status (cont.)

• Rockefeller staff seeking compromise bill that can attract near unanimous Senate approval – Unable to do so, yet.

• AAR has at least 11 outstanding issues, including anti-trust, network compensation, and paper barriers

• Rail unions are generally supportive of R.R. position on STB & Anti-trust issues.

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The Legislative Clock is ticking…

…and time is running out.

STB Status (cont.)

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Sec. 301 – Paper Barriers

• S. 2889 would: – Prohibit new PBs unless “reasonable and in the public

interest.”– Allow challenges to existing PBs, and allow STB to

“take appropriate action”– Allow STB to set valuation for buyout of PB at option

of a short line– Allow short lines to surcharge customers for PB

buyout– Make PB buyout eligible for RRIF financing and

provide grants for credit risk premiums

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Sec. 302 - Bottleneck

• S. 2889 would:– Require Class I’s “upon request” and short

lines “as deemed appropriate” by STB finding, to establish bottleneck rate.

– Note: All carriers were originally required to quote rate upon request. Partial short line carve out represents initial ASLRRA lobbying success.

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Sec. 302 - Bottleneck

• S. 2889 would:– Require Class I’s “upon request” and short

lines “as deemed appropriate” by STB finding, to establish bottleneck rate.

– Require STB to set standards for determining a “reasonable” bottleneck rate.

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Sec. 303 – Terminal Access

• S. 2889 would: – Board may require Class I’s to make areas

available to other carriers.– Board may require short lines to make

terminal areas available “as deemed appropriate.”

– Access available where R.R. has “market dominance.”

– Require STB to set standards for “reasonable” terminal access rates.

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STB – House of Representatives

• House has twice called a hearing on STB Reauthorization only to cancel the hearing.

• C.C. appears to be pressuring House T&I Chairman Oberstar to accept whatever comes out of the Senate.

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Topic 3 – Positive Train Control

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PTC• The Basics:

– RSIA of 2008 Mandates Positive Train Control Systems by December 31st, 2015 for Class I RR Main Line segments (carloads > 5M per year) which:• Transport PIH or TIH Materials ( carloads > 100 per

year)• Host or Operate Over Passenger Lines

– Short Lines are tentatively exempt from PTC requirements, expect those that:• Operate on Class I lines Carrying PIH / TIH Materials• Host of Operate over Passenger Lines• Have At Grade Crossings Over Lines Required to Have

PTC*

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PTC Costs• FRA estimates ≈ 60 Short Lines Will Need to

Equip Locomotives with PTC Technology

– Estimated Costs (FRA):• $55,000 – $220,000 per locomotive• Industry Wide Implementation ≈ $13.2 M• Annual Maintenance ≈ $1.98 M• Total Industry Front End Investment ≈ $15 M• Other costs: Training, Economic, Derailments

– Actual Costs:• We Don’t Know• But We Need to Know, Soon.

– This will cost the rail industry billions with little or no economic return

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PTC Funding Solutions• Grants

– Safety Technology Grants• RSIA 08 authorized $50 M annually 2009-2013• Maximum Federal Match of 80%

– Rail Line Relocation Program• Typically Appropriated ≈ $ 25 - $30 Million Annually• Maximum Federal Match of 90%• Program is well known and increasingly competitive

• Tax Credits– Class I Tax Credit

• AAR is working on making PTC upgrades eligible under a yet-to-be passed Class I credit

– Section 45G• PTC upgrades could fall under the category of Signal Upgrades and would

therefore qualify for the Section 45G credit• Loans

– Commercial loans are not a viable option due to basic economics of PTC

– RRIF Loans• Modify to allow for a 35 year, 1% loan for PTC upgrades and/or increase cap

2020

Topic 4 – Truck Size and Weight Update

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TSW Update

• Threat continues• Not going to happen in Congress until next

year• State level attacks will continue

– Florida– Idaho

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Topic 5 – As Of Today

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As Of Today• Republicans make gains in House

– Probably take back majority– Most probably stopping majority of threats to

rail industry• Re-reg is a bigger problem than most want to

admit

• Senate gets closer to 50/50 (D’s 52-48)• New Congress moves forward

– Then figures out in about April 2011 that this is harder than their press releases said