A Guide to Transportation Funding Options
Freight rail infrastructure and operations are funded almost entirely by the private sector. Rail maintenance, replacement, and expansion of track, structures and equipment by Class I railroads (those with annual operating revenues of over $250 million) is almost totally funded by income from operations by these companies. Smaller short line and regional railroads tend to be the major recipients of state and local funding, which is often provided through general fund expenditures.
The National Railroad Passenger Corporation (Amtrak) is the primary provider of passenger rail services in the nation. Amtrak does not earn enough in passenger revenues to cover operating expense and must rely on federal grants and other federal expenditures. It operates almost entirely on tracks that are owned by private freight railroads with the exception of some portions of its Northeast Corridor.
Federal Rail Programs
Rail, unlike other transportation modes, does not have a dedicated federal funding source. Thus, any federal funding programs that are rail oriented are discretionary and awarded on a competitive, nationwide basis. No state is guaranteed to receive federal rail funding.
A highway-railroad grade crossing is an intersection where a roadway crosses railroad tracks at the same level. Railroad companies generally own and maintain railroad tracks, but several agencies may have jurisdiction at the point at which these tracks cross a publicly funded roadway, and improvements at these crossings may be funded by this program. Funds are appropriated from the Highway Trust Fund. Projects must have the objective of enhancing safety and can include separation or protection of grades at crossings, reconstruction of grade crossing structures, signing, pavement markings, active warning devices and relocation of rail lines or highways to eliminate grade crossings. SAFETEA-LU increased funding for this program to $220 million per year for FY 2006 to FY 2009.
The program funds local rail-line relocation and improvement projects. States are eligible for a grant from the Federal Railroad Association (FRA) for any construction project that improves the route or structure of a rail line and
- Involves a lateral or vertical relocation of any portion of the rail line, or
- Is carried out for the purpose of mitigating the adverse effects of rail traffic on safety, motor vehicle traffic flow, community quality of life, or economic development.
Congress has appropriated $25 million in federal funds for this grant program for FY 2009. Of this amount, $17 million will be directed to 23 non-competitive projects. These include:
|COLT Overpass over U.S. 63, Boone County, MO||$950,000|
|Downeast Rail Rehabilitation, Washington Junction/Ellsworth to Green Lake, ME||$190,000|
|East Belt Railroad Grade Crossing Safety Improvements, Houston, TX||$475,000|
|Elevated Railroad Track Project, Claremore, OK||$332,500|
|Grand Rapids Amtrak Railroad Relocation, Grand Rapids, MI||$3,800,000|
|High Speed Passenger Railroad Service, Duluth, MN||$475,000|
|Intermodal Terminal Facility and Track Railroad Relocation, Sacramento, CA||$950,000|
|Lackawaxen Interchange Rehabilitation, Pike County, PA||$47,500|
|Passenger Rail Corridor CREATE Projects, Chicago, IL||$1,900,000|
|Phase 3 Rail Rehabilitation in Redwood Falls, MN||$950,000|
|Pecos Street Grade Separation, Adams County, CO||$190,000|
|Quad Cities Track Improvement, IL||$475,000|
|Railroad Bridge Rehabilitation, E1 Dorado, AR||$332,500|
|Railroad Bridge Rehabilitation, Perry County, IN||$380,000|
|Railroad Grade Crossing Safety Improvement, Huntington, NY||$95,000|
|Railroad Relocation Planning, Terre Haute, IN||$475,000|
|Short Line Rehabilitation, Salem, NJ||$950,000|
|Southeast 44th Avenue Railroad Crossing Improvements, Des Moines, IA||$237,500|
|Stourbridge Line Maintenance and Repair, Honesdale, PA||$95,000|
|Transbay Transit Center, San Francisco, CA||$1,900,000|
|Track Repair and Replacement, Coos County, NH||$475,000|
|West Freight Access Project, Fort of Vancouver, WA||$950,000|
|Zanesville-Muskingum County Port Authority, OH||$475,000|
The remaining funds will be awarded on a competitive basis.
The Local Rail Freight Assistance Program (LRFA) was established to provide financial support to states for the continuation of rail freight service on abandoned light density lines. Light density freight rail lines are those that do not carry more than 5,000,000 gross tons per- mile per-year. It also provides capital assistance for rehabilitation prior to, rather than after, abandonment of these lines. States are to use funds provided under this program to make other grants and loans for rail development.
This program provides grant funds for eligible surface transportation projects authorized under Title 23 of the United States Code. These projects may include freight railroad projects. Projects must have a total eligible cost greater than $500 million or 75 percent of the total Federal highway funds apportioned to the state in which the project is located. Eligible costs include those incurred during development (including planning, feasibility analysis, revenue forecasting, environmental review, preliminary engineering and design work, and other preconstruction activities) and the costs of construction, reconstruction, rehabilitation, and acquisition of right-of-way, environmental mitigation, construction contingencies, acquisition of equipment, and operational improvements.
Funds are awarded on a competitive basis. Projects are evaluated on their ability to:
- Generate national economic benefits
- Reduce congestion
- Improve transportation safety
- Enhance the national transportation system
- Garner support for non-Federal financial commitments and the degree to which Federal investment is leveraged
- Provide evidence of stable and dependable financing for construction, maintenance, and operation of the facility
- Use new technologies that enhance project efficiency
- Help maintain or protect the environment
Funds are apportioned from the Highway Trust Fund in the amount of $1.602 billion for FY 2006 through FY 2009.
This program provides $30 million in total grants (through 2009) to states for congestion reduction and safety enhancements and facilitates and supports the development of intermodal freight transportation initiatives at the state and local level. It also provides capital funds for freight distribution and infrastructure needs at intermodal freight facilities and inland ports. States wishing to apply for funding under this program should submit project descriptions to the Federal Highway Administration (FHWA) and identify:
- How the project will help relieve congestion, improve transportation safety, facilitate international trade, and encourage public-private partnerships.
- Ways in which the project will establish or expand intermodal facilities that encourage the development of inland freight distribution centers.
This U.S. Department of Agriculture program provides three types of funding: direct community facility loans, community facility loan guarantees, and a community facility grant program. The aim of the program is to provide funds for programs that develop essential community facilities for use in rural areas. Rail facilities eligible for this funding include rail spurs serving industrial parks, yards, sidings and mainline tracks. During FY 2007 the program provided $297 million in direct loans, $208 million in loan guarantees, and $17 million in grants. The grants offered can cover up to 75 percent of the project cost. The amount of grant assistance provided will depend on the median household income and the population in the community where the project is located and the availability of grant funds. Projects that are highly leveraged with other loan and grant awards are more likely to receive grants under this program.
The Obama administration has proposed the development of a high-speed rail network of 100 to 600 mile intercity corridors. It is expected that an initial investment of $8 billion from the American Recovery and Reinvestment Act (ARRA) will provide for the initial funding followed by the implementation of a $1 billion per-year high-speed rail grant program. The administration is proposing three funding "tracks" for the future:
- Projects – This track will provide grants to complete individual projects that are "ready to go" with preliminary engineering and environmental work completed.
- Corridor programs – Under this track, states will enter into cooperative agreements to develop entire phases or geographic sections of corridor programs that have completed corridor plans and environmental documentation, and have a prioritized list of projects to meet the corridor objectives. This approach would involve additional Federal oversight and support.
- Planning – Under this track, states will enter into cooperative agreements for planning activities using non-ARRA appropriations funds, in order to create the corridor program and project pipeline needed to fully develop a high-speed rail network. While this strategy is included in the plan as a funding track, grants are not actually awarded. Rather, this represents an initial step for states who wish to prepare for future funding under the high speed rail program.
Criteria for awarding funding will be based on:
- Public Benefits. The extent to which the project or corridor program provides specific, measurable, achievable benefits in a timely and cost-effective manner, including: (1) contributing to economic recovery efforts, (2) advancing strategic transportation goals (outlined above), and (3) furthering other passenger rail goals articulated in the Passenger Rail Investment and Improvement Act of 2008.
- Risk Mitigation. The extent to which the project or corridor program addresses critical success factors, including: (1) fiscal and institutional capacity to carry out projects, (2) realistic financial plans for covering capital and operating costs, (3) formal commitments from key stakeholders (e.g., railroads and participating States), and (4) adequate project management oversight experience and procedures.
Federal Credit Assistance
This program provides direct federal loans and loan guarantees for the financing and development of railroad infrastructure. Statute prevents the program from having more than $35,000,000,000 in unpaid direct loans and loan guarantees at any one time. Funding may be used to:
- Acquire, improve, or rehabilitate intermodal or rail equipment or facilities, including track, components of track, bridges, yards, buildings and shops;
- Refinance outstanding debt incurred for the purposes listed above; and
- Develop or establish new intermodal or railroad facilities
Direct loans under this program may be used to fund up to 100 percent of a railroad projects cost. Repayment periods may be up to 35 years. Entities eligible to apply for direct loans include railroads, state and local governments, government-sponsored authorities and corporations, joint ventures that include at least one railroad and limited option freight shippers who intend to construct a new rail connection.
The amount of assistance provided under this program has varied from year to year. In recent years, loan agreements have been execited for the following railroads:
- 2008, Iowa Interstate Railroad, $31.0 million
- 2008, Nashville and Eastern Railroad, $4.6 million
- 2008, Columbia Basin Railroad, $3.0 million
- 2007, Great Western Railway, $4.0 million
- 2007, Virginia Railway Express, $72.5 million
- 2007, R.J. Corman Railway 2007, $59 million
- 2007, Dakota, Minnesota & Eastern Railroad, $48 million
- 2006, Iowa Northern Railroad, $25.5 million
- 2006, Wheeling & Lake Erie Railway, $14 million
- 2006, Iowa Interstate Railroad, $9.35 million
- 2005, Great Smoky Mountains Railroad, $7.5 million
- 2005, Riverport Railroad, $5.5 million
- 2005, The Montreal, Maine & Atlantic Railway, $34 million
- 2005, Tex-Mex Railroad, $50 million
- 2005, Iowa Interstate Railroad, $32.7 million
- 2004, Stillwater Central Railroad, $4.6 million
- 2004, Wheeling & Lake Erie Railway, $25 million
- 2003, Arkansas & Missouri Railroad, $11 million
- 2003, Nashville and Western Railroad, $2.3 million
- 2003, Dakota, Minnesota & Eastern Railroad, $233 million
- 2002, Amtrak, $100 million
- 2002, Mount Hood Railroad, $2.07 million
Funds may be made available through TIFIA credit assistance for rail projects that are deemed to be of national or regional significance.
State and Local
Most states have developed comprehensive rail plans and fund these plans through the state's general fund. For example, the State of Indiana allocates 0.029 percent of revenues from the state's gross retail and use taxes to the Indiana Industrial Rail Service Fund.
State Revolving Loans
The Kansas Railroad Assistance Program
This program was established to provide short line railroads in Kansas with 10-year low interest revolving loans that are used primarily for track rehabilitation.
States may utilize federal funds to develop revolving loan programs for the funding of state railroad projects. Under this system federal funds, such as those provided by the Local Rail Freight Assistance program, are loaned to railroads at a rate below the prime interest rate. Payments on the loans, including principal and interest, are then used to generate additional loans.
Tax-exempt private activity bonds may be issued for rail projects such as freight transfer facilities sponsored by the private sector.
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