Part 2: How Public Ownership of the Freight Rail System Could Work
“We could have really high-quality trackage. Full electrification in a dozen years or so on all the major lines, with the amount of money that’s coming into the railroads right now. They’re just choosing to siphon it out of the industry and put it in shareholders’ pockets instead of reinvesting it. We would change that.” —Maddock Thomas, author, “Putting America Back on Track: The Case for a 21st Century Public Rail System.”
Editor’s Note: This is Part 2 of a special two-part Work-Bites report on the increasing dangers across the nation’s freight rail system and the growing calls for public ownership of those lines.
By Steve Wishnia
The “Putting America Back on Track: The Case for a 21st Century Public Rail System” report released earlier this month lays out several arguments for public ownership of freight railroads.
Service to customers would be more frequent and reliable. Revenues would be invested in critical infrastructure improvements, and that would create thousands of union jobs. There’d be enough staffing for workers to have regular schedules instead of being on-call with next to no time off. Shipping more goods by rail instead of by truck would reduce carbon emissions, shipping costs, and wear and tear on roads.
“The current railroad system could be extraordinary,” the report’s author, Maddock Thomas, told Work-Bites. “We could have really high-quality trackage. Full electrification in a dozen years or so on all the major lines, with the amount of money that’s coming into the railroads right now. They’re just choosing to siphon it out of the industry and put it in shareholders’ pockets instead of reinvesting it. We would change that.”
Public ownership would also enable coordinated national planning, Thomas says. Instead of having freight routes divided among regional duopolies, there could be nationwide through service. It would also mean better planning with passenger rail lines to avoid the delays that plague Amtrak.
Rail is the most climate-friendly method of transportation, Thomas says, and it would be even more so if the U.S. system were fully electrified, as well as sparing communities near the tracks the toxic health effects of diesel emissions.
Almost half of rail lines globally are electrified, but less than 1% are in the U.S. “At one point, we had the most electrified tracks in the world,” Thomas says. “It’s all gone, except for the Northeast Corridor” and a few commuter railroads. India’s publicly owned rail system, which carries more freight than the U.S. system and more than 3.5 billion passengers a year, is expected to be fully electrified by the end of this year, the report says.
The problem, Thomas explains, is that the Class I railroads, the six largest, “won’t do the infrastructure investments” to install the overhead catenary systems that would power locomotives by electricity instead of diesel fuel. Electrification would mean that locomotives would be more powerful, accelerate faster, and last longer, and operations and maintenance would be 30-40% cheaper. But in the short term, it would require a lot of capital investment, “and that cuts into your quarterly profits.”
History
Public ownership of railroads in the U.S. goes back to the 19th century. The Baltimore and Ohio, the nation’s first major railroad line, was half owned by the state of Maryland and the city of Baltimore. In the South, the report says, city and state governments provided over 55% of construction costs for railroads built before the Civil War. In the 1870s, Cincinnati built a railroad to Chattanooga, Tennessee, and owned it until this March, when it was sold to Norfolk Southern.
The federal government nationalized railroads during World War I. After the war’s end, all the railroad unions endorsed the Plumb Plan, proposed by Glenn E. Plumb, their general counsel, which would have put the railroads under permanent public ownership. It would have had the federal government issue bonds to buy out the railroads, and set up an independent nonprofit corporation that would lease their infrastructure and run the trains. It would also have been managed by a board of representatives of labor, management, and the public, with shipping rates set by the Interstate Commerce Commission.
In a 1919 referendum, more than 300,000 railroad workers almost unanimously supported continued government ownership. The United Mine Workers and other unions backed the Plumb Plan, as did some farmers, and the American Federation of Labor endorsed “government ownership and democratic operation” at its 1920 convention.
But in 1920, Congress ultimately passed the Transportation Act, returning the railroads to their private owners.
Today, public ownership of railroads is most concentrated in the Northeast, with Amtrak and local commuter lines. But many states, including Maine and Georgia, have acquired the rights of way to smaller lines that the Class I railroads dumped. North Carolina owns a railroad that runs from the Port of Morehead City to Charlotte, and a state law requiring it to reinvest its earnings from leasing to improvements has resulted in significant upgrades in speed, the report says. Tacoma, Washington, has run Tacoma Rail as a public utility since 1914, providing service to and from the Port of Tacoma. It supports itself from revenue and touts that 99% of its trains are on time.
The railroad craft unions have never rescinded their endorsement of the Plumb Plan, Railroad Workers United organizer Matt Weaver told Work-Bites. How can we get them to reinvest in that? he wonders.
Different forms of public ownership
There is significant debate among supporters of public ownership about what form it should take. The three main models are open access, franchising, and public operation.
In open access, the government owns the tracks, and different operators can run trains on them. In franchising, the government contracts out the right to run trains, typically to the highest bidder that agrees to provide a set amount of service. In public operation, the government or a related authority both owns the tracks and operates the trains.
Thomas personally leans toward full public operation. In Europe, where open access is most common, empirical research shows that “it doesn’t induce that much competition except on very high-density corridors where there’s a lot of demand,” he says. “The public is eating the cost of the infrastructure—track-access charges that are below the actual cost of maintenance to induce new entrants to the market.”
Open access makes more sense for passenger rail, he says, as passenger-train operators can bid for different time slots along routes with a set number of stations. With freight rail, which serves far more locations, there would be too many trains to be economical.
Franchising has more of a pedigree in the U.S., Thomas says. The report suggests that it “may be best suited to the role that it currently plays, providing operators for state-owned Class II and III railroads where the state does not have the capacity or desire to operate them directly.” These are shorter lines that generally have low profit margins, but states want to maintain service on them.
In Great Britain, where the national rail system was privatized and franchised out in the 1990s, ticket prices are high, trains chronically late, and private operators now receive roughly quadruple the amount of subsidies that British Rail was getting before privatization, the report says. Track ownership and maintenance were renationalized in 2002, and Scotland and Wales have recently renationalized most of their lines.
One argument for open access and franchising is encouraging competition. That has some potential, Thomas notes, as some states have only one Class I railroad. But it would be hard for newcomers to compete, because the Class I lines “already own the railyards, they have the locomotives.” In Britain, the report says, so few companies have bid for franchises that “two-thirds of contracts have been awarded without any competition since 2012.”
One danger, Thomas says, is that a private-equity firm might come in “with a scab nonunion crew and try to undercut everybody on price.” Switzerland called that “social dumping” when it decided not to do full open access.
Another is that investors would “cherry-pick the most profitable service,” while they “leave all the grain elevators in North Dakota to rot.”
Millions of people depend on those farms, Thomas says, and somebody has to serve customers such as smaller manufacturers. Full public operation could cross-subsidize those less profitable routes.
Where’s the money?
The obvious question about complete public ownership of freight rail is funding, given the fiscal woes of Amtrak—such as recent electrical outages in the Northeast Corridor’s antiquated power system—and local public-transportation systems.
“A lot of passenger transit is no longer profitable. Freight rail is extraordinarily profitable,” Thomas responds. “It could be self-funded. Freight generally covers its own costs.”
Expanding service to cover the many shippers dropped by the Class I railroads “would be less profitable, but would still be profitable,” he continues. Public subsidies would still be necessary in some situations, as a lot of branch lines aren’t profitable. One possibility might be public investment in private rail that comes with an ownership stake.
And if trains were run by a public authority, he says, it could borrow money at a lower interest rate than the private sector.
How could it happen?
The report did not go into detail about how railroads could be transferred to public ownership, but there are a number of avenues, Thomas says.
One is buying out private owners. For example, the Virginia Passenger Rail Authority has been purchasing rights of way from CSX and Norfolk Southern.
That’s not ideal, Thomas says, but it wouldn’t be impossibly expensive. If Congress were to purchase major rail corporations at the current stock price, he estimates it would cost around $200 billion. “We want to run a better railroad, which might mean a less profitable railroad,” he says, but current profit margins are so high that “even in about 10 years, we could probably pay off the bonds to buy out the railroads.”
Another possibility is reclaiming old land grants. Many 19th-century land grants to railroads are still in effect, including the 1869 golden-spike transcontinental line and the old Illinois Central route from Chicago to New Orleans.
The land under the tracks could still be reverted to the federal government, Thomas says. “Congress could say that they have broken their contract under the land grant, that they are not providing the public service that we were promised when we gave these public lands away, that we’re now taking it back and giving it to a public operator.”
At the least, he says, the government could charge railroads rent and mandate higher-quality maintenance. However, very few lines in the East are land grants.
Politically, the obstacles to getting nationalizing railroads through Congress are huge.
“This White Paper seeks to rekindle a long-dormant conversation about public ownership of the railroads,” the report concludes. “Making this vision a reality will require a bold coalition of workers, shippers, trackside communities, concerned citizens, and rail passengers. The Public Rail Now campaign has begun the task of forming this coalition, but there is still much discussion and organizing that needs to take place.”
“Public ownership of part or all of their rail systems has allowed many other countries to create rail systems that can move people and goods quickly, affordably, and in an environmentally sound way,” the independent UE union, which represents workers at Wabtec’s locomotive factory, said in 2023. “With public ownership, governments can take the long view and make crucial infrastructure investments—and prevent price-gouging.”
Click here for more on the “Getting America Back on Track” study