U.S. Legislative Update for the Freight Rail Industry: FAST Act & 2016 Omnibus Appropriations
For the first time three years, Congress passed a funding and authorization bill to govern United States federal surface transportation spending. In December, the FAST Act (“Fixing America’s Surface Transportation Act”) passed and was signed followed immediately by the Fiscal Year 2016 Omnibus Appropriations Bill later in the month. Both pieces of legislation have important implications for the freight rail industry. Here’s our analysis.
FAST Act – Freight Rail Impact
The FAST Act includes updated rules for tank cars carrying flammable liquids.
Under the new law, ALL tank cars carrying flammable liquids must be retrofitted or replaced to meet the more robust DOT-117 design standard, regardless of the number and arrangement of these cars on a train. To accommodate the increased number of tank cars that will now be impacted by these rules, the timeline for retrofit / replacement has been slightly extended for certain segments of this tank car fleet; however, the timeline for crude and ethanol tank cars remains unchanged.
It should be noted that Canada maintains a separate retrofit / replacement timeline, which has not changed and is largely consistent with the U.S.’s schedule prior to the Fast Act. This means that all cross-border tank cars will still need to be upgraded per the original schedule.
Secondly, the controversial ECP (electronically controlled pneumatic) brake rules for tank cars will now be contingent on a study to be completed by the General Accountability Office and The National Academy of Sciences within two years.
Other changes to tank car rules include formalized tank car modification reporting through surveys and shop visits along with more precise DOT-117 tank car design specifications for new cars and retrofits.
Altogether these rules improve the safety profile of the flammable liquids tank car fleet by ensuring that every single car meets the most current DOT-117 design standard. They also put the ECP brake rules on hold for the near future and make it easier for regulators to track the progress of tank car retrofits and replacements.
2016 Omnibus Appropriations – Freight Rail Impact
Freight Rail Appropriations
• Freight rail safety grants totaling $50 million, including $25 million for infrastructure improvements and $25 million for safety technology are part of the bill, which will help fund Positive Train Control upgrades (PTC).
• Final bill removed provisions that would have allowed double-trailer freight trucks to operate with 33-foot trailers versus the current maximum of 28 feet. Without this measure, more freight should remain with intermodal rail, a comparatively safer mode of transportation.
• A one-time increase of $350 million was included for the Rail Highways Crossing Program (Section 130), which provides funds for the elimination of hazards at railway-highway crossings.
• The Railroad Track Maintenance Tax Credit, otherwise known as the 45G short line tax credit, was extended for two years. This credit allows short line and regional railroads to claim up to 50% of qualified track maintenance and railroad infrastructure expenditures.
General Transportation Appropriations
• The U.S. DOT's Transportation Investment Generating Economic Recovery (TIGER) competitive grant program was renewed with $500 million in funding. This program awards grants on a competitive basis for capital investments in surface transportation projects. Roughly 8% of 2015 grant applications were for rail projects.
• Amtrak’s funding level will remain the same at $1.39 billion. While Amtrak is primarily a passenger railroad, they are an important partner to freight rail with regard to issues such as general rail infrastructure and rail safety.
• Bonus depreciation was extended another five years, although it will be stepped down from 50% in 2017 to 40% in 2018 and 30% in 2019. This tax measure incentivizes capital investments in certain types of property / assets such as freight railcars.
• The research and development (R&D) tax credit for businesses was made permanent as part of the appropriations package. This tax credit incentivizes business innovation by helping offset the cost of R&D, which is expected to benefit both the freight rail industry and the economy at large.
America’s freight rail infrastructure is one of the country’s greatest competitive advantages. U.S. lawmakers from both parties recognize the importance and macroeconomic benefits of continuing to maintain and invest in this national asset.