Hamberger’s Q3 Outlook: Despite SCOTUS Focus, Important Issues Lurk
While Washington is laser focused on the confirmation process for Supreme Court nominee Brett Kavanaugh, work remains ongoing on a host of important issues to the rail industry specifically, including international trade, filling vacancies at the Surface Transportation Board (STB), and laying the ground work for substantial work next year on surface transportation legislation.
Since I last offered a quarterly take, I announced my retirement from the AAR after 20 years serving the freight railroad industry. To close out my tenure at the AAR, I will work with our members to advance the industry’s agenda in these three areas:
International trade: What started as an effort to renegotiate the North American Free Trade Agreement (NAFTA) — a particularly critical agreement for freight railroads given the integration of the network across the continent — has morphed into what is rightly being considered a trade war. The Trump administration recently announced the contours of a bilateral trade agreement with Mexico, but the handshake deal means very little without Canada at the table. After all, NAFTA is a trilateral agreement, and renegotiating the deal under Trade Promotion Authority from Congress requires the USTR to involve Canada. It is progress to be sure, but the deal must involve all three nations so as not to disrupt, among other things, the supply chains freight railroads invest in to serve.
The latest developments on North American trade occur against the backdrop of a prolonged emphasis on tariffs, not just with China, but with allies across the globe. With no end in sight, the business community is increasingly united in communicating the value of free trade not just to their respective industries, but to workers and the economy. Promisingly, a new poll from The Chicago Council on Global Affairs shows record support for free trade in the U.S., including 82 percent of Americans saying that trade is good for the economy, and 63 percent supporting NAFTA.
Moving forward, it is our hope that free trade policies can advance, and that the White House can take a step back and consider a more strategic approach. Without question, there are issues to address in U.S.-China trade relations. However, undermining an otherwise healthy economy by taxing U.S. consumers and businesses via tariffs is not the best way to achieve success.
Surface Transportation Board (STB) vacancies and regulatory proceedings: The Senate Commerce committee recently voted Democratic nominee Martin Oberman out of committee. This development means that Congress could finally fill the five Commissioner slots at the STB for the first time since 2015 reauthorization. The Supreme Court confirmation process, of course, complicates the Congressional calendar and makes this more difficult, at least in the immediate future. Yet it is noteworthy that all three pending nominees have cleared the committee and now just await full Senate confirmation.
Most in the industry and in Washington expect there to be a fully staffed STB at some point this year. The AAR looks forward to working with new STB members, in addition to current Chairman Ann Begeman and Commissioner Deb Miller. The reality is that several proposals that could greatly impact the industry remain under consideration and will ultimately be acted upon one way or another. Our goal will be simple: demonstrate that efforts to undo today’s successful economic regulatory framework — which provides balanced protection for railroads and shippers — is a solution in search of a problem. From forced switching to the possible redefinition of revenue adequacy, nothing has changed since these measures were first proposed that increased their merit.
Surface transportation legislation: With Transportation Committee Chairman Bill Shuster releasing a blueprint for a major infrastructure bill — done in the mold of what former House Ways & Means Chairman Dave Camp (R-Mich.) did in offering the outline that ultimately led to tax reform by a subsequent Congress — raising revenues to pay for such a bill remains the biggest unknown. Chairman Shuster advocates for a short-term gas tax and then a long-term shift towards mileage based user fees. And, there seems to be increased support for this proposal — a forward-thinking solution known as a Vehicle Miles Traveled (VMT) tax — as prominent leaders such as Rep. Sam Graves (R-Mo.), and Sen. Tom Carper (D-Del.), who would play an outsized role in such legislation, are on record recently in supporting such a measure.
“My sense is that’s where we’re going, ultimately,” Sen. Carper said at a July hearing. Freight railroads support such a move should it help remedy the consistent underpayment of trucks to cover their infrastructure use, which in turns helps lead to an insolvent Highway Trust Fund subsidized by general taxes. By combining weight and distance for trucks, a VMT system could end today’s policy lapse while also creating needed parity between railroads and trucks.
“The VMT is more efficient because it can be tailored to a vehicle’s weight, number of axles, and geography, thereby matching the fee paid with actual wear and tear on roads,” says former Congressional Budget Office Director Douglas Holtz-Eakin.
Past concerns, including privacy, are a red herring in an era in which our iPhone tracks our every move. Therefore, serious legislation should include directions on how to move to this more modern and sustainable funding model.
