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February 2013



Short Lines & Regionals Article
Association makes big contributions to small railroad industry over the past century



Short Lines & Regionals

— by Jeff Stagl, Managing Editor

In the early 1800s, all U.S. railroads were short lines, or small-sized roads that were formed in many cities to move freight and passengers.

By the early 1900s, short lines remained an important economic factor in their local communities, but not a strategic component of the larger rail systems that developed nationwide. As highways were built, trucking competition increased and manufacturing patterns changed from the 1930s to 1970s, the number of U.S. short lines declined from a peak of nearly 500 to slightly more than 200.

After the Staggers Act was enacted in 1980, Class Is began to market or sell unproductive branch lines to short-line operators, which fostered a rebirth of small railroads. Today, there are more than 550 U.S. short lines and regionals.

Just as short lines have evolved over the past 200 years, the American Short Line and Regional Railroad Association (ASLRRA) and its predecessor organizations have adapted over the past century to better serve the small-road industry's interests. The association, which has more than 900 members, is marking its 100th anniversary in 2013.

Early predecessor the American Short Line Railroad Association (ASLRA) for 50 years primarily served as short lines' representative with Class Is to resolve traffic issues, such as rates, routes and divisions.

But after the Federal Railroad Administration was created by the Department of Transportation Act of 1966 and Class Is began to consolidate after the spate of bankruptcies in the 1970s, the association assumed the role of representing the short-line industry's regulatory interests in Washington, D.C., and business interests with large roads.

Later, the ASLRA merged with the Regional Railroads of America in 1997 to form the ASLRRA, placing the representation of regionals' and short lines' interests under one umbrella organization.

"We gained synergies and focus, and gained contacts in every congressional district in America," says ASLRRA President Richard Timmons of the merger. "We obtained a lot of political energy, and became far more influential."

There have been other twists and turns that helped mold today's ASLRRA. Among them: Conrail's formation that helped spawn new small railroads; the passage of the Section 45G tax credit to help support short lines' infrastructure investments; and the forging of the Rail Industry Agreement governing interchanges with Class Is.

As business and regulatory conditions changed for short lines and the entire rail industry, the association needed to roll with them, says Timmons.

"There's no standing still. We need transparent transportation networks that are responsive and reliable and competitive, and that demands change," says Timmons, who became ASLRRA's president in 2002.

Tomorrow's ASLRRA will need to continue its adaptive ways, he believes. It was crucial that 22 small railroads with common interests came together in 1913 to form ASLRRA's first predecessor, the Short Line Railroad Association of the Southeast (SLRA), in Atlanta. And an association among small roads is just as vital now, particularly when it comes to legislative and regulatory issues that impact hundreds of regionals and short lines, says Timmons.

"There's a constant churning of activity," he says.

A Representative Sample

Several longtime short liners believe the association has helped the small-road industry navigate the sometimes choppy waters on Capitol Hill, especially the past decade under Timmon's guidance. It would be difficult for short lines to survive in a changing regulatory environment without strong representation in D.C., says Livonia, Avon & Lakeville Railroad Corp. President and Chief Executive Officer Eugene Blabey, who has been involved with the association since 1965.

"It's not a one-size-fits-all-railroads deal with regulations," he says.

The association's lobbying efforts have helped short lines become recognized by Congress as a vital industry, says Ed Lewis, chairman emeritus of Aberdeen & Rockfish Railroad Co., who retired as the short line's president in 2007 and has been involved in the small-road industry since the 1960s.

"Lobbying has been important to level the playing field," he says.

While ASLRRA has shifted from an industry association involved in traffic matters to a trade association engaged in economic and legislative issues, the complexion of short-line members also has transitioned — from mostly plant facility railroads controlled by large companies and "junction and back" railroads to short lines owned by large group operators and independent operators, says Blabey.

"Keeping up with changes is a big thing the association has done," he says.

ASLRRA has become a different organization by necessity, especially since so many short lines have been formed since 1980, says Bruce Lieberman, vice president of short-line holding company Anacostia & Pacific Co. Inc., who's been involved in the industry since the 1980s.

"The association is an effective voice when new regulations are proposed or something comes up that we need, like the tax credit," he says. "Speaking as a group is important."

The Urge To Merge

That's been evident ever since SLRA was formed on Sept. 17, 1913. The idea of group representation — and an aim to make the group larger — led SLRA to merge with the Short Line Association of the Southwest to form the 115- member Short Line Association of the South in 1916. Later, the SLRA combined with several short-line organizations in the East to form ASLRA in 1917, and the ASLRA then merged with the Western Railroad Association in 1921 to forge a 483-member organization.

But by the 1940s, forced Depression-era consolidations among railroads reduced ASLRA membership to 303, while a series of railroad mergers by the early 1960s further eroded membership to 255.

In 1970, the Penn Central Railroad began what became a rash of railroad bankruptcies that dropped ASLRA's membership to 212 in the early 1970s.

A slight bounce-back occurred in 1976, when federal legislation created Conrail from seven bankrupt railroads and the sale of some Conrail lines resulted in the formation of several short lines. The real short-line renaissance began four years later, when the Staggers Rail Act of 1980 was enacted. The legislation eliminated a regulatory structure that had been in place since the 1887 Interstate Commerce Act and provided interested parties more freedom to enter or exit rail markets.

The Staggers Act prompted many mergers among large railroads — which ultimately reduced the number of Class Is from more than 50 to seven — and many branch line spin-offs that led to the creation of dozens of short lines. Through the 1980s, ASLRA membership climbed closer to 300.

"The real bellwether was the surprising reaction to the Staggers Act. The short line business roared to life and filled niches," says Timmons. "Small railroads became service oriented and targeted. It was a real evolution in the 1980s."

So, too, for the association. ASLRA had been a "necessary and important part of traffic relationships" for short lines well prior to the Staggers Act, and maintained traffic offices in Atlanta, D.C. and Chicago, says Blabey. Post-Staggers, its role as an industry representative in D.C. grew as more federal regulations impacted short lines.

Buffer Zone

The association has been a worthwhile buffer between short lines and regulators, says Indiana Rail Road Co. President and CEO Tom Hoback, who's been involved in the short-line industry for the past 27 years.

"They have had thoughtful responses to FRA rulemakings," he says.

Into the 1990s, the number of short lines and ASLRA members continued to grow as more Class I mergers and branch-line sales occurred. By 2002, the U.S. short-line count had risen to 545.

"It was a morphing period in the 1990s. We brought in manufacturers of equipment and products as members, and had far more interaction at the federal and state levels, and at federal agencies," says Timmons. "We could talk on par with the [U.S.] Department of Transportation and Congress, and gain bipartisanship. We created specialized committees to tackle various issues."

One key issue that surfaced was the need for an industry agreement with Class Is, especially regarding interchanges. ASLRRA helped craft the Rail Industry Agreement in 1998 that addressed traffic issues between large and small railroads, such as car supply, service quality, rates and routing principles.

The agreement also took on paper barriers, says Iowa Interstate Railroad Ltd. Vice Chairman Dennis Miller, who has been involved in the short-line industry since the late 1980s. Dating back to the early 1980s, the term "paper barrier" refers to a contractual restriction placed by the seller or lesser of a rail line transferred to a newly created short line or regional on the transferee's ability to interchange traffic with any railroad but the transferor. Paper barrier provisions were clarified to enable a small road that purchases a line from a large road to interchange traffic with a third railroad.

In the early 2000s, the ASLRRA addressed another industry issue: the need for a short-line tax credit. Because many lines needed upgrades, in part because of the rail industry's transition from 263,000- to 286,000-pound freight cars, short lines sought federal funding to help pay for the work.

In 2004, ASLRRA lobbyists worked with Congress to enact the Section 45G measure, which serves as an incentive for short lines to invest in infrastructure projects by providing a tax credit of 50 cents for every dollar spent on rail improvements, up to a cap of $3,500 per mile of owned or leased track.

"The tax credits were a major accomplishment. It's a shame the government delayed giving them to us," says Aberdeen & Rockfish's Lewis, referring to several years of debate that occurred before Section 45G passed.

The tax-credit measure was extended several times after it initially expired in 2005; in early January 2013, the tax credits were made retroactive for calendar year 2012 and extended through 2013.

In addition to the tax credits, the ASLRRA has stepped in to lobby for other federal funds to help short lines improve infrastructure, such as through the Railroad Rehabilitation and Improvement Financing program, says Blabey.

"There was a need for capital to improve lines that were in poor condition," he says.

Safer And Sounder

Since the late 1990s, the association also has accomplished other key objectives for short lines, such as by improving safety and safety training/education, says Indiana Rail Road's Hoback.

"One element of the ASLRRA safety program is that it covers large and small railroads, many of which don't have the resources or the commitment to improve safety on their own," he says. "By raising the bar, [Timmons] and his team have really improved the focus on and commitment to safety by all members."

In addition, the association has emphasized online training, such as for safety, bridge issues and conductor certifications, says Iowa Interstate's Miller.

However, some training, such as how to perform safety audits, would be better conducted in the field in a worker's own environment instead of on a computer, he believes.

"Workers are more apt to ask questions if they're more comfortable in their own environment," says Miller.

Another area ASLRRA could improve upon, at least from a regulatory standpoint: exhibiting the same engagement on the Hill in the areas of "re-regulation" and truck size and weight as the association did with the tax credit, says Hoback.

"We need to keep getting the message out," he says.

Timmons and other ASLRRA leaders are well aware that more adjustments will need to be made to objectives and programs in the years ahead so small railroads' interests are better served. It's not as if goals and initiatives — and the entire industry — haven't been altered many times already over the past century.

"We went from 250 railroads to 560 in a space of 20 years, which is pretty remarkable," says Timmons. "We need to be a 'springboard' instead of a 'platform' for short lines because we, as an industry, need to spring forward."



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