217.370.8505 cory@bletislb.org

Railroads to Investors: ‘We Got This’

WATCHING WASHINGTON, RAILWAY AGE JANUARY 2024 ISSUE: It is observed—positively and negatively—that Class I freight railroads are lucrative ATMs for investors, dispensing from profits $253 billion in stock dividends and buybacks since 2009 as calculated by Surface Transportation Board (STB) Chairperson Martin J. Oberman.

Deputized to guard the future of such cash disgorgements are lobbyists fluent in the transactional conversation of Capitol Hill, attorneys artful in crafting legal defenses, and third parties commissioned to sway opinion leaders and decision makers.

The railroads’ lobbying budget alone reflects the perceived peril. Those dividends and buybacks represent what cannot be prudently reinvested and are rightfully owned by investors, but coveted by shippers seeking government-prescribed lower freight rates. Annually, the AAR spends some $5 million on lobbying; CSX, $1.5 million; Norfolk Southern, $1.8 million; and Union Pacific, $3.9 million. (BNSF lobbying expenses are not reported separately by owner Berkshire Hathaway.) Millions more are funneled through political action committees (PACs) to curry political favor.

In 2024, rail lobbyists, attorneys and influencers will toil to block costly rail safety legislation, derail a bill delimiting management operating-plan discretion and thwart unwelcome STB and Federal Railroad Administration (FRA) decrees.

Topping challenges is the Rail Safety Act (S. 576), hastily born of populist politics following train mishaps, including a February 2023 Norfolk Southern derailment in East Palestine, Ohio, that terrifyingly spilled and ignited hazardous chemicals—the cleanup costs approaching $1 billion.

S. 576, which earned Senate Commerce Committee approval in May 2023, would significantly broaden FRA regulatory authority over train length and safety inspections, increase maximum allowable fines and mandate two-person crews on many Class I trains. The bill’s elaborations contain ambiguities and gaps to be interpretated and filled in by regulators often harboring preferred policy outcomes.

With backing by Majority Leader Chuck Schumer (D-N.Y.), President Biden and a growing list of Republicans, S. 576 may be but another headline grabbing rail accident (or ProPublica article or John Oliver episode) away from reaching the Senate floor. If passed, S. 576 travels to the House, where railroads would lobby Rail Subcommittee Chairperson Troy Nehls (R-Tex.) to block its reaching an uncertain House floor vote.

Then there is the Improving Reliable Rail Service Act (S. 2071), which, while unlikely to gain a floor vote, could be engrafted onto S. 576 by amendment. Its language, similarly stuffed with ambiguities, would harden, in ways railroads oppose, the common-carrier obligation.

At the five-member STB, Democrat Oberman, who plans a 2024 departure, will remain to vote with his Democratic majority on cases generating railroad queasiness. In 2023, he had two opportunities to provide shipper-favorable case-law definitions of the statutorily undefined common-carrier obligation no matter the fate of S. 2071. Aware of the politics, BNSF settled a complaint by Navajo Transitional Energy Company, with Union Pacific seeking resolution with shipper Sanimax—the latter perhaps an attempt by new CEO Jim Vena to reset relations with the Board.

The second case is a rulemaking to decide if, and under what circumstances, a sole-served shipper should gain access to a second railroad through STB-mandated switching. Oberman recently engaged antitrust expert and law professor Christopher L. Sagers as a consultant.

Post-Oberman, the STB may remain evenly divided politically—Senate Republicans lacking incentive to confirm a Democratic nominee ahead of November elections that could allow a Republican successor.

While the first term of Republican Patrick J. Fuchs expired Dec. 31, statute permits him to remain into January 2025 if not renominated and reconfirmed. Shipper groups already have dispatched to the White House letters in support, and railroads are unlikely to oppose his renomination. The reason is his reputation as “calm,” “solid” and “seriously thoughtful.”

At the FRA, the Administrator, reputedly joined at the hip with rail labor, is finalizing a minimum crew-size mandate and new requirements for dispatcher and signal employee certification. Railroads will ask federal courts to nullify the directives, alleging lack of safety justification and remarkably negative benefit/cost ratios.

If railroads are suffering acid reflux, it is not apparent in their dispatches to investors: “Sleep tight. We are on guard.”