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Steel Interstates and Line Development Banks

There are multiple fundamental resources available to get caught up on the basic Steel Interstate concept. The Millenium Institute Report on the benefits available from a broad Steel Interstate program is written up in this Oil Drum post which is an excellent in depth introduction.

The RAIL Solution group promotes establishment of a trial corridor from Harrisburg, Pennsylvania through the Shenandoah Valley of Virginia through to Knoxville, Tennessee ~ incorporated into part of my “Liberty Line” proposal, above ~ and several pages on their site give useful introductions to various aspects of the concept.

The Steel Interstate Coalition is intended to be an umbrella organization pushing the concept, founded by RAIL Solution.

(Right: National Line) I know how much some people love national network maps. And I’ve sketched out what I think of as a plausible national network map, based primarily on existing STRACNET (Dept. of Defense designated STrategic RAil Corridor NETwork rail corridors) lines and focusing on existing long haul truck freight flows.

But I would, of course, far prefer that Steel Interstates are established without every using my map than to get agreement on my maps for a system that is never implemented.

The point is more to sort out freight corridors in a general sense that can be given to specific “Line Development Banks” to develop.

A Line Development Bank is established along the same lines as a federal/state “Regional Development Bank”, as a public not for profit corporation operating under a board nominated by Federal and appropriate State governments. The finance for a Line Development Bank will be some dedicated source of interest subsidy for bonds (or other instruments) to be issued by the Bank to fund the start of construction. Then the capital cost of the construction will be refunded by user and access fees on the corridor.

(Right: Heartland Line) This system avoids “putting all our eggs in one basket” by establishing four distinct Line Development Banks. The Federal Government, as source of the interest subsidy, would establish the common design envelope, and ensure that rail operators can move seamlessly from one Steel Interstate to another when they meet at a junction.

You Catch More Bees With Honey …

A critical element of the Steel Interstate system is that the Steel Interstates will be built primarily on privately owned right of way. Indeed, one reason why I would not insist on my maps being the “right” maps is that the intention here is to operate in cooperation with the private rail operators.

After all, if the system is to be successful in eliminating 7% or more of our oil consumption, and therefore 10% or more of our oil imports, it will be because the private freight operators have successfully won that business.  So it would be the responsibility of the Line Development Banks to enter into negotiations with the owners of the various corridors that can be used to connect the markets they are charged with connecting.

There would be four different types of infrastructure owned by the Line Development Banks. The first would be electrification infrastructure available for use by trains on the existing private track in the corridor. The second would be dedicated Express Freight Rail paths consisting of higher speed express freight tracks and overhead electrification, balanced for heavy freight rail travel at 60mph and permitting light freight rail movements at 100mph.

The third type of infrastructure is the Positive Train Control signaling system required for safe operation of the Rapid Freight Rail service.

The fourth type of infrastructure would be Ultra High Voltage Direct Current power lines, strung above the rail power supply lines, to provide Electricity Superhighways connecting important renewable power resource areas with important power consuming areas.

So, what are the benefits to the private rail operators? First, private railroads are capital intensive operations, and are exposed to the risk of economic downturns undermining the revenues required to service the financing of capital improvements. This system takes that burden off their hands. They will still own (and be responsible for) the main heavy freight networks that are the core of the bulk freight markets that they now dominate.

However, if it is useful, they can switch from diesel to electric locomotives on those lines by paying a User Fee for the overhead infrastructure. It is a public good if they do that, so we make it available to them on no-risk terms: use it when its a benefit, otherwise don’t. We would expect that its in return for having that no-risk choice available that they will grant an easement for the construction of that publicly infrastructure.

And if they wish to run on the Express Freight tracks, they will pay Track Access Fees for doing so ~ given the economics of track maintenance, probably at a different rate for trains of different maximum weight. That is, again, a no-risk choice: they can continue to run as they presently do on their present track for any train where the opportunity of running on the Express Freight tracks is not worth the track access fee, but still have the extra capacity available for use where it is of benefit.
The Passenger Rail Side-Effect

(Right: Gulf and Altantic Line) These lines are laid out to serve major long-haul truck freight markets. However, the establishment of electrified Express Freight rail corridors also allows for the establishment of Amtrak-style long-haul services that operate at 110mph max, 60mph~80mph trip speeds rather than 79mph max, 35mph~55mph trip speeds.

Further, since the services would be operating on systems designed to allow for high-reliability rapid freight rail service, they would be able to offer substantially higher reliability passenger rail service than the current Amtrak long haul services running primarily on heavy bulk freight rail corridors.

Long haul passenger services are not primarily “end to end” services at present: even though a service may run for several days, the average trip is six hours long. This upgrade in speed for the portions that can run on Steel Interstates means an increase in demand for the services. It also an increase in the availability of passenger cars to cater to that increase in demand, since the quicker transit time means that the same cars can run more routes in a given week.

And it also means a decrease in costs per passenger mile. The labor costs of staffing the long haul trains are paid by the hour, rather than by the mile, so even at the same staffing levels, faster trains mean lower costs per mile. And the cost to power the electric locomotives from overhead electrical supply is lower than the cost to power the diesel locomotives today.

The absence of a Steel Interstate for some or all of an existing Amtrak heavy rail corridor does not imply that the heavy rail corridor should be closed. But there is a strong benefit in using a Steel Interstate for then rural and emergency back-up transport services provided by the long-haul corridors wherever there is a Steel Interstate available.
A Steel Interstate is More Than The Sum of Its Parts

“If it makes so much sense, why don’t the private railroads do it today?”

Why is it that freight rail focuses so much on bulky, low-value per ton freight in the first place? We heavily cross-subsidize freight trucking in this country, by charging truck freight substantially less in diesel highway taxes than the damage that they cause to the Interstate, National, State, County and Township highways that they travel on. Those subsidies squeeze trains out of a substantial range of markets that they might compete successfully in, given a more level playing field.

Indeed, we impose property taxes on private freight rail corridors while truck freight runs primarily on tax-free publicly owned right of way.

So its natural that freight railways focus on those freight markets where their competitive advantages are so strong that they overcome the heavy subsidy granted to freight trucking. And that focuses railroads on moving freight for the lowest cost per ton mile that they can get away with. And that cost focus implies running routes for minimum operating cost, rather than to meet transit time or reliable time of delivery targets.

The principle advantage of regular and rapid electric freight rail in competing for energy wasting truck freight markets is in long haul markets. But you can’t expand into long haul markets in small, incremental steps: unlike a High Speed Rail passenger corridor, a “long haul freight” corridor of two or three hundred miles is simply too short to have a substantial market impact.

Yet carrying the financial exposure of financing a one or two thousand mile long Steel Interstate corridor presents a private railroad with a major business risk, if there should be a recession in the middle of the construction of the corridor and the railroad cannot afford the finance during the construction period.

And many of the benefits of the system ~ reducing damage to Interstate, National and State highways, increasing economic resilience in the face of an oil price shock, reducing the ongoing drain of paying for oil imports ~ are not benefits to the private railways. Because of the competitive advantages of having a Steel Interstate system available, we can be confident it will be used if made available.

But no market is able to design a complex system on its own, so if we want to gain these benefits, and this system is beyond the reach of individual private railroads, then we need to intervene to bring the system into existence.
And Brawny Recovery

Our last two GDP recoveries have been Wall Street “casino finance” based recoveries. And building a GDP recovery on the back of casino finance is trying to build our economic house on a foundation of sand.

The idea of a Brawny Recovery is to try something that we did more of back in the 1950’s and 1960’s: building our recoveries on the back of spending that lays a foundation for further income growth. That is, a GDP recovery that actually builds the economic muscles of our society.

And the Steel Interstate system is an opportunity to get back to doing that. The Millenium Institute system was a full system cost of $475b, including the Electricity Superhighway, so divided between four Line Development Banks would be about $120b worth of works each. At 3% to 5% interest rates, a $2b interest subsidy is about $40b to $60b in capital funding, which would be sufficient to get a substantial line up and going and start the process of generating Access and User fees to complete the system.

So with a dedicated $2b/yr, a Line Development Bank can be launched and can proceed with $40b to $60b in works. Four Line Development Banks, with $8b in interest subsidy, could proceed with $160b to $240b in capital works.

What makes this a Brawny Recovery Strategy is that as usable segments are completed and start to be used, the rail operators will invest in more rolling stock and expand their container terminal facilities to take advantage of their new market position. And as the Electricity Superhighways are completed, that supports investment in wind turbines for wind farms and other renewable energy resources, further increasing private investment.

The investment in the Steel Interstates is itself a public/private partnership, with the public side providing the security of interest subsidy and the private side refunding the original capital cost of the construction. But it is also part of a broader public/private partnership, in which public development of infrastructure leads to further useful private investment in real productive capacity.