Don’t Let Freight Economy Run off the Rails

Moderate Public Investment in Freight Rail Industry Will Keep This Job Creator Chugging

Julia Kantor and Donna Cooper urge Washington policymakers to support a strong American industry where small public investments become major economic gains.

The $265 billion freight rail industry is a particularly smart choice for public investment in a period of tight budgets because it can turn small public investments into major economic gains. (AP/Reed Saxon)
The $265 billion freight rail industry is a particularly smart choice for public investment in a period of tight budgets because it can turn small public investments into major economic gains. (AP/Reed Saxon)

Even as the U.S. economy shed more than 3.3 million jobs during 2009 and 2010, railroad employment shot up by 5.2 percent—a trend industry experts expect will continue.

That’s why budget cuts recently proposed by the head of the House Transportation and Infrastructure Committee come at an especially bad time. In particular, Rep. John Mica’s (R-FL) proposed elimination of a surface transportation grant program could have dire consequences.

Eliminating the $1.5 billion TIGER program (for Transportation Investment Generating Economic Recovery), which has provided a crucial boost to freight rail transportation, threatens the momentum of this job-creating industry at a critical moment for our national economic recovery.

As U.S. Chamber of Commerce head Thomas Donohue said earlier this year, “Congress should develop a comprehensive freight program to ensure adequate capacity, reduce congestion and increase throughput.” He cautioned that “to rebuild America, we need more than good ideas. We need money. Every option—from federal funding to private investment—must be on the table.”

The $265 billion freight rail industry is a particularly smart choice for public investment in a period of tight budgets because it can turn small public investments into major economic gains.

Demand for freight rail is growing, as total freight shipments are projected to rise by 61 percent in the next 30 years. The freight rail industry has steadily increased investments in infrastructure before, during, and after the recession. Indeed, its companies now pump 17 percent of their own revenues into capital projects—one of the highest capital investment rates in the U.S. economy. And while its workers represent just 1 percent of the American workforce, the industry contributes 2 percent to annual gross domestic product.

But some ongoing public investment is needed to keep this job-creating train running strong. That’s because existing public structures sometimes impede freight rail growth. We need to raise bridges to permit double stacking of cargo cars. We need to widen tunnels to permit larger loads. And we need new spurs to connect to warehousing facilities, which will increase the job-creation benefits of these investments.

Maintaining the TIGER program through 2035 would allow us to meet the $35 billion in public funding needs estimated by the American Association of State Highway Officials.

Continued public investment would also create jobs at a time of persistently high unemployment. And these are good jobs. The average railroad worker in 2008 was paid $54,760, compared with $42,270 a year for the average American worker. “With record unemployment, federal policies to protect and increase the supply of good jobs should be our nation’s top priority. Limited federal investments in freight rail mean more jobs that pay a decent wage for Americans,” said Fred Simpson, vice president of the International Brotherhood of Teamsters, which represents 70,000 rail workers, and president of its Brotherhood of Maintenance of Way Employees Division. “We support the massive investments being made by the operators but there is a limited and important role that the federal government can play that will create jobs and increase the use of freight rail in America.”

The benefits go beyond the rail workers themselves. For every $1 billion in freight rail capital investment, an estimated 7,800 direct and indirect jobs are created. The indirect jobs are concentrated in the manufacturing sectors that build locomotives, railcars, and factory machinery. Taking re-spending into account, this $1 billion investment yields between 12,300 and 26,600 jobs throughout the economy, according to a 2010 report by the Blue Green Alliance, a partnership of labor unions and environmental groups.

The benefits of the industry are not just economic. Moving cargo by rail is also better for the environment. It is more fuel efficient and produces less pollution than truck transport. “While accounting for nearly half of total U.S. freight ton-miles, rail currently contributes only about 11 percent” of pollution coming from all rail, ship, and truck freight transport, reports the BlueGreen Alliance.

To be sure, public funding cannot and should not take the place of rail companies’ investments. The industry should continue to rely primarily on private funding. With profits rising to $9.2 billion in 2010, this is a sector well-equipped to satisfy the bulk of its capital improvement needs. But where existing infrastructure inhibits growth, public funding is necessary to propel the industry.

As they consider whether cutting infrastructure spending is a smart move, House Republicans should listen to the business community. “We must avoid cutting off our nose to spite our face,” the Chamber’s Donahue told senators earlier this year. “Without proper investment and attention to our infrastructure, the United States’ economic stability, potential for job growth, global competitiveness, and quality of life are all at risk.”

Julia Kantor is an intern and Donna Cooper is a Senior Fellow at the Center for American Progress.

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Donna Cooper

Senior Fellow