The Plot to Take Over America's Railroads

There are powerful bureaucrats in Washington. There are master plans mapping out which railroads will live and die. There are innovators being kept from modernizing rail service. This is the saga of the Federal Railroad Administration.

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You probably think America's railroads are being deregulated. Certainly if you watch TV news, read newsmagazines, or even read in-depth publications like the Wall Street Journal, you've heard stories like the following:

• Last August the Interstate Commerce Commission struck down the railroads' collective rate-setting machinery, aiming to increase price competition.

• In September Congress finally passed a long-snarled bill to roll back federal railroad regulation substantially, freeing the railroads to set fares with minimal ICC control. President Carter signed the bill into law in October.

• In December the Reagan transition team on transportation policy urged a speedup of ICC deregulation efforts, an end to subsidies for Conrail, and sale of Conrail's lines to profitable railroads.

Unfortunately, what all these stories leave out of the picture is at least as important as what they convey. Omitted from these reports on the phasing out of conventional regulation by the ICC is the alarming growth of backdoor regulation by the FRA. While free-market forces close up their briefcases and head for home, thinking their job is done, US railroads inch closer to nationalization every month. And orchestrating the slippage is none other than the FRA.

The F-R-what? Few people even know that the Federal Railroad Administration exists, much less what it does. Created in the mid-1960s as part of the new Department of Transportation, it inherited jurisdiction over railroad safety from the Interstate Commerce Commission. To its original Office of Safety have been added departments administering regional affairs and an Office of Research and Development (including an Office of Economics and Operations Policy, an Office of Systems Analysis and Information, and an Office of Rail Planning) and the Office of Federal Assistance, this last responsible for $1.6 billion in federal loans and loan guarantees to the railroads.

Today, the FRA has better than 1,600 employees. It's a beehive of activity that threatens to overshadow the ICC as the railroads' major regulatory overseer. Over the past decade, virtually unnoticed outside the railroad industry, the FRA has produced a master plan for restructuring this country's railroads, stifled innovations that might restore their viability on their own, and extended financial help—in exchange for a rapidly growing ownership stake. Each separate event, by itself, might not be that worthy of note. Taken together, however, they add up to an ominous pattern, one that could radically alter America's principal means of freight transportation.

SAFETY BY THE BOOK Ringing out the old and bringing in the new doesn't even occur to those who enforce the rules. For nearly two years the Federal Railroad Administration obstructed the introduction of a privately developed rail-highway technology that its promoters claim will require only half the fuel consumed by present-day trailer-on-flatcar "piggyback" trains. Why? Because, an official told me, in effect, "We have to do our job."

"We have sixteen separate sacred cows on rail equipment, you see. Some things the Rail Safety Board can change by regulation, but not those items required by law." Robert Abbott of the FRA's Office of Safety went on to explain what some of these "sacred cows" are: ladders and grab-iron handles located along the sides of freight cars, traditional rail air brakes, and couplers located 34 inches above the rail so that cars rolling together will couple automatically.

The requirements date from the era when the railroads utilized primitive equipment that required switchyard workers to step between cars to make a coupling, leading to numerous injuries and deaths. The Janney Automatic Coupler began to eliminate this hazard shortly after the Civil War, and the Rail Safety Act of 1893, from which today's Federal Railroad Administration derives its authority to govern rail technology in the name of safety, encased turn-of-the-century hardware in the law. As Abbott notes with some pride, the statute has been amended only two times since, in 1903 and 1910.

That is, until FRA foot-dragging forced Bi-Modal Corporation to appeal to Congress last spring to permit the introduction of technology that lay outside FRA's hidebound hardware specifications. How and why the Greenwich, Connecticut-based rail equipment supplier had to obtain legislation in order to bring innovation to railroading explains a great deal about the political obstacles that still loom before the prospective transportation entrepreneur. They also throw some light upon the strategic power of the FRA itself.

Bi-Modal had begun in 1976 to develop a unique rail-highway freight vehicle to replace current piggyback systems and in the process cut into the number of trucks traveling long distances via highway. Trademarked "RoadRailer," the prototype units came out of the plant in 1978 looking like truck trailers, but with a rail axle tucked up behind the rear highway wheels. An air suspension system on each RoadRailer lowered the rail axle and raised the highway axles on the railroad; the nose of each RoadRailer would then be connected to the tail of the one immediately ahead, to make RoadRailer trains.

All this unique innovation, according to Bi-Modal president Robert S. Reebie, would permit an intermodal train that would not need flatcars for trailers and thus would eliminate half the weight, wind resistance, and fuel consumption of the piggyback train. RoadRailers were projected to be upwards of 25 percent cheaper overall compared to piggyback. And safer. They could stop in half the distance of conventional trains and would be more stable on curves and bad track because of their lower center of gravity. And in spite of their unconventional design, yard operations would not require the stepping between or riding on rolling stock that had made the 1893 freight car standards still applicable to modern-day rail equipment.

Bi-Modal proceeded to test the prototypes through 1978, and when they successfully withstood stress tests at the Association of American Railroads (AAR) laboratory in Chicago interest became intense. For it seems that the skeptics' first line of defense had been that no one could possibly build a highway trailer that would withstand train service, where the first unit behind the locomotive always has to bear the load of all those behind it.

But build it they did, to the accompaniment of rising consternation among the piggyback flatcar builders and their friends in the FRA. A whispering campaign of sorts began against the RoadRailer but had a hard time keeping up with the units' visible success as they demonstrated high-speed stability and weighed in on the track scales some 30 percent lighter than FRA officials had been predicting. Still, the rumors flew.

Even before this, both Reebie and Alan Cripe, Bi-Modal's engineering vice-president, were well known at the Federal Railroad Administration. As the organizer of the first railroad marketing department (at the New York Central in the 1960s) and the author of several landmark rail-highway freight studies, Reebie had for more than two decades been crusading for radical changes in the way railroads operate. As a consultant writing for the FRA, he had many times crossed swords with agency officials when he insisted on clarifying important, but politically awkward, truths about the need for modernized rail labor practices.

When the AAR and the FRA began advertising that railroads are four times more fuel-efficient than trucks (a shibboleth that persists today), Reebie embarrassed them with a study of West Coast traffic showing that—excluding bulk cargo, such as coal, that cannot be transported by truck at costs anywhere near rail rates—the rails' efficiency advantage over piggyback equipment is marginal and disappears altogether where trains encounter steep grades. In 1978, several such feuds were still simmering in the same corners of the FRA's Office of Freight Systems from which the nation's railroads were apparently obtaining misinformation about the RoadRailer.

Alan Cripe was, if anything, the subject of even more vituperation at the FRA than Reebie. As RoadRailer development neared production readiness in late 1978, Cripe's longstanding differences with the FRA over the importance of aerodynamic resistance in the design of rail equipment heated up anew with the release of FRA test results that empirically confirmed several long-time Cripe predictions.

FRA VS. INNOVATION Thus was the ground laid for BiModal's struggle to get beyond the hardware specifications of the Rail Safety Act. Let them write new standards for RoadRailer equipment if they want, or we will develop our own safety program, said Bi-Modal, but we cannot be bound by requirements that are as foreign to us "as propellers are to a jet." The FRA's reply was simple and to the point: Because RoadRailers did not exist when the Safety Act's requirements were written, we have no authority to permit an exemption. Therefore, RoadRailers will not be allowed to operate.

Catch-22. It was a nice job, answering in this way. No matter that entrepreneurial hopes and dreams and millions of dollars in gained efficiency were at stake. Lack of authority made the refusal seem justified on its face, though government is famous for its ability to redefine or ignore such regulations when its own purposes are suited.

Who could say what vendettas or grudges were gratified by regulating the RoadRailer out of existence? Who could gauge the importance of the fact that many FRA safety officials trace their professional pedigree to the railroad supply industry, an industry dominated by companies that build $50,000 piggyback flatcars, whose technology was being seriously challenged for the first time in decades? Unanswerable questions, and well worth remembering, because the aggressive entrepreneur, so critical to economic growth and prosperity, so often breeds distrust and envy among tradition-bound colleagues—and when these gravitate to the regulatory apparat, they gain the upper hand.

The RoadRailer continued testing outside the United States while Bi-Modal turned to Congress for relief. After many months of "selling" their idea to legislators when company officials could have been developing paid customers, Bi-Modal finally obtained the interest and support of Sen. Russell Long, who introduced a rider to an unrelated piece of transport legislation that passed Congress on May 30, 1980. Immediately dubbed "the RoadRailer bill," Reebie's amendment simply permitted the secretary of transportation to exempt a new technology from the Rail Safety Act's requirements, where that technology demonstrates safety in FRA-supervised tests. Political maneuvering to secure the amendment's passage resulted in an addition requiring rail labor's support before new technology can be introduced under the exemption.

The RoadRailer bill was a pure example of what is known in the lingo of regulatory reform as "replacing hardware specs with performance specs." Everybody claims to be against hardware specs because of their inflexibility, and not too long ago Federal Railroad Administrator John M. Sullivan once again professed his agency's commitment to a performance-standard basis of regulation. Yet it took legislation to blast the RoadRailer loose from the grip of the FRA bureaucracy, and even now FRA officials receive the newly mandated exemption process with unconcealed ill grace. This businessman, this promoter, "dazzled" Russell Long into opening the floodgates to any crackpot inventor who wants to return us to the days when every 10th railroader was killed in service. Or so they grumble.

For the RoadRailer at least, the foot-dragging has stopped for now, but FRA hostility toward independent rail innovation remains. The safety people are comfortable with their 1893 statute, as amended three-quarters of a century ago, and complain, concerning the RoadRailer, that "there's been a lot of compression[?] on this."

THIS LITTLE PIGGY The Federal Railroad Administration, of course, will tell you that it's not opposed to private innovation per se. Any official will recite the FRA's mission: to do anything it can to promote a safe, prosperous, competitive, energy-efficient railroad system in the private sector. Nothing here that even many free-market Reaganites would disagree with.

There is also an unstated agenda, however. The FRA wants a piece of the action; it wants knowledge and control. Hence it does its own research and development, primarily conducted through and in cooperation with the AAR and usually serving to bestow on that trade association a semigovernmental function of preserving the American railroads as a collective, standardized entity. The unwritten policy works both to "break" mavericks directly and to confront them with federally subsidized competition in R&D.

One example of FRA innovation is the "low-profile" piggyback car that in 1976 was ordered created by Congress. At that time, the FRA was emerging from its initial R&D stance, whereby primary emphasis had been focused upon developing advanced ground-transport systems that it believed private capital would not fund. The energy crisis and the Carter administration's trendy penuriousness wrought a complete shift toward funding projects of immediate application, and the low-profile "pig" car was one result.

That project had been mandated because some piggyback equipment was unable to operate under the overhead wires of the Northeast Corridor's electrified railroad lines, and no piggyback trains of any kind could traverse low tunnels under New York Harbor, the shortest route between the South and New England. In general, there was also great concern that existing piggyback equipment was seriously overweight. So Congress appropriated $500,000 for the FRA to design and build a lightweight, low-profile car.

As so often happens, the need that had prompted the special legislation had already stimulated considerable private action. The FRA's own previous tests with a stripped-down car operated on the Santa Fe lines had motivated that railroad's engineering department to continue tests on even lighter-weight cars. At least two low- profile designs were under development by newly formed corporations in 1977, and Trailer-Train, the principal lessor of piggyback flatcars to the nation's railroads, soon was testing an improved car of its own. Before long, the RoadRailer, which addressed weight and clearance limitations better than any of the trailer-on-flatcar designs, also was off and running.

Yet the FRA spent about $150,000 and over two years spelling out laborious performance specifications and dithering over various designs for an ideal pig car. Late in 1978, with Santa Fe's car, the Trailer-Train car, and the RoadRailer all in prototype form, the FRA finally got around to holding a bidder's conference with potential builders of its low-profile, lightweight car. The reception was, by all accounts, chilly. According to the FRA's Jim Blanchfield, "We concluded that we had a seriously underfunded program here." Other industry sources say that the problem was more nearly that FRA specifications were unrealistic; the car-builders essentially refused to bid on the program. The FRA's Office of Freight Systems finally conceded that it had, in any event, been overtaken by private progress, and the program was quietly retired.

DROPPING THE ROCK It is not just in technology that railroads are in desperate need of breakthroughs. Current railroad management practices—in everything from marketing to labor relations—often seem bogged down in the 19th century, leaving the railroads less and less able to compete with trucks. Unfortunately, the FRA has shown itself as hostile to independent managerial innovations as it is to technological breakthroughs. The recent dissolution of the Rock Island Railroad is a case in point.

For several years prior to 1979 the Rock Island, in spite of being in bankruptcy, had doggedly pursued development of a new concept of rail operations in lightly-trafficked, rural branchline country, where short local trains operating with two-person crews would essentially roam the territory near their terminals, picking up or delivering loads on call and staying at the shipper's siding until the freight car was free to go back—operating, in a sense, like local truckers always have. Initial tests of the "Farm-Rail" concept produced noticeable service and revenue improvements, but when it was brought to the attention of the Federal Railroad Administration by company president John Ingram, he was informed, as he related recently in Trains magazine, that "because of the labor questions involved in the approach it was something the government would not touch." Or perhaps tolerate.

The Rock Island's own unions remained more or less adamantly opposed to giving up old work rules, and as the bankrupt railroad was driven to the wall by the harsh winters of 1977 and 1978, it introduced the Farm-Rail proposals into active negotiation. The unions made counter demands and struck when they did not get them, precipitating a general shutdown of the railroad in the late summer of 1979.

When the strike came, the Rock Island put into effect a contingency plan for operating essential railroad services with management crews. After six weeks, the Rock was moving 30 percent of its prestrike tonnage with 5 percent of the previous on-train personnel, and it projected that by late November it would be moving half its normal freight volume and earning profits equivalent to $60 million a year. "The railroad was winning the strike," said Ingram.

Toward late September, federal officials began making belligerent noises about this turn of events. Department of Transportation Secretary Neil Goldschmidt launched an attack upon the Rock Island management, saying that it had "failed to pay wages when due, jeopardized the safety of the public and of railroad employees, and driven service steadily downward." No doubt the DOT's hostility went back to 1975, when then-new president Ingram had resisted liquidation of the company, and Congress had put the strong arm on the DOT to bless the Rock with a loan guarantee. Expressing this hostility, Goldschmidt lamented that "the Rock Island has maintained its corporate identity by running its physical plant and services into the ground." Of course, competitors Milwaukee Road and Chicago & North Western were being lavishly subsidized by FRA money while the Rock went pretty much its own way.

The ICC was persuaded, however, that the railroad's refusal to settle the strike on union terms was "creating a national emergency," though actually a preliminary agreement had already been reached. Politicians were up in arms about the Rock Island's supposed failure to move the grain harvest, though actually, said the line, it was shipping out grain at record levels. Yet on September 26 the ICC ordered the Rock Island taken over and operated by a consortium of connecting railroads, with the Rock's employees to be put back to work on union terms and losses to be paid for by the US Treasury. The Farm-Rail innovation, and Rock Island's maverick management with it, were consigned to history.

CONTROLLING INTERESTS As with technology and management, so it goes with finance and the structure of the industry. Long before the word reindustrialization came into vogue, the nation's railroads were being used as guinea pigs, mostly willing, in an effort that would see the Federal Railroad Administration become thoroughly involved in mandating the route and traffic structure of major railroad companies.

FRA control stole in via the back door, when Congress began appropriating monies in the early 1970s to shore up faltering railroads in the Northeast. As it has developed, FRA assistance to railroads for track and equipment expenses has begun to display some important side effects.

First, FRA money allows the bureaucracy to brazenly pick winners and losers in the railroads' competitive scramble for traffic and profits. Rock Island again provides an example.

Until the company gave up the ghost, John Ingram had fought for years an apparent conviction within the FRA that the Rock should die while competitors Milwaukee Road and C&NW benefited from federal aid. Since the "theory" behind FRA rehabilitation assistance is that it fills a gap created by the railroads' inability to find private capital, it is instructive to hear Ingram writing on the subject recently in Trains: "Where rebuilding could be financed by private funds, they were available in adequate amounts, but where federal funds were the only funds available, they were, for all intents and purposes, not available [to us].…Many applications for financing track rebuilding were filed with the FRA. But with the exception of two small projects little help was obtained from that quarter."

Yet when the Southern Pacific Transportation Company recently petitioned the Interstate Commerce Commission to allow it to purchase and rehabilitate a major segment of the Rock Island lines from New Mexico to Kansas City, competitor Santa Fe complained that the only reason SP could even begin to consider this massive invasion of Santa Fe's home territory was that FRA funds were available to help SP upgrade much of the old Rock Island trackage. (Shortly after purchase, SP received $48.5 million in FRA subsidies for rehabilitation, to be matched by $48.2 million of its own funds.)

Similarly, controversy has been boiling over Chicago & North Western's proposed construction of a 207-mile line into the coal-rich Powder River Basin in Wyoming, a potent competitive thrust against the existing Burlington Northern rail line which will take place only if $230.5 million in FRA subsidy is forthcoming.

Less generally apparent is the quiet effect FRA assistance is having upon rail management practices. Obtaining federal aid for one's lines puts a premium on positive "visibility" and on maximizing sales rather than profitability. To use an example repeatedly observed in railroad marketing practice, it helps to be able to show that one's railroad is experiencing great increases in piggyback traffic, keeping truck trailers off the interstate highways and implementing "national energy policy" by saving fuel at the ostensible rate of four-to-one over highway. No matter that you acquire this traffic volume by pricing it below cost—volume, not profit, is what matters when pleading one's significance to the FRA. At a juncture when railroads need to know their costs so as to accurately compare innovation against current operating practices, the thrust of FRA assistance discourages sound costing and management.

As time goes on, the pressure for greater "control" over federal spending is leading the FRA to adopt an increasingly activist stance in setting terms and conditions for its giveaways. What began in 1970 as an essentially strings-free loan of $100 million to the Penn Central has grown over the last decade to a $12 billion federal stake in American railroading. While it is extremely difficult to get an accurate handle on all the kinds of aid that today's railroads receive from government, Trains magazine columnist Don Phillips recently did some back-of-the-envelope calculations that suggest the radical intervention represented by the FRA's "backdoor" financing. Not only has there been $6.5 billion for Amtrak and another $3.1 billion for Conrail disbursed from the US Treasury; the Federal Railroad Administration has administered the following aid to supposedly private railroads: $505.1 million in direct grants or forgiven loans, $483.2 million in direct loans, $375.7 million in outstanding loan guarantees, and, most alarming, $308.8 million in federal government purchases of railroad trustee certificates or preference shares, redeemable over 30 years at 2 percent interest with the first payments not generally due until the 11th year.

These last are essentially direct grants that convey large ownership interests in US railroads to the federal government. Examples of current and future approved outlays under the preference shares program are: $166.4 million to the Illinois Central Gulf Railroad for rehabilitating its main lines between Chicago and New Orleans; $147.5 million to a regular supplicant, the Chicago & North Western, for track upgrading; and $33.8 million to the bankrupt Milwaukee Road for similar work. In all, the program takes in eight railroads scattered throughout the East and Midwest.

What all this will come to is anybody's guess. During the 1930s and '40s, the rails dipped deeply into the federal trough via the Depression-era Reconstruction Finance Corporation, and those loans were mostly paid back without Uncle Sam assuming any lasting control. It is wrong to assume, however, as historians often do, that RFC assistance and massive government railroad rebuilding work during those decades was without lasting economic effect. The case can certainly be made that this aid fostered an illusion of rail prosperity in the early 1950s that impelled many companies, notably the northeastern railroads, to plunge even more deeply into debt. The resulting fixed-cost burdens had much to do with the wave of bankruptcies experienced in the early 1970s. (The decade of the '80s will see even more long-term railroad debt coming due.)

More worrisome in the short term is the reindustrialization-style pressure propelling the Federal Railroad Administration to strong-arm the nation's railroads into a federally mandated plan for restructuring the current companies into fewer, larger systems. Such plans have been on the drawing boards for a decade and may go a long way toward explaining why the FRA has lavished rehabilitation grants on the railroads it has. A recent General Accounting Office report, however, urges the FRA to abandon aid for rehabilitation and focus strictly upon encouraging suitable marriages between railroads, using taxpayer dollars as the dowry. To which the FRA has replied that, as a practical matter, one cannot separate the aid for rehabilitation and the FRA's power to compel industry compliance with the agency's restructuring goals. Precisely so.

THE GREAT CON Given that the entire history of rail regulation can be loosely described as a series of attempts to shore up inefficient routes and corporate structures, the difference between a federally brokered restructuring and a true market rationalizing of the nation's rail system takes on significant dimensions, for both rail investors and consumers. Which way the FRA would like to go—and how far—is pointedly clear in its stance toward Conrail, the federally subsidized northeastern rail giant created in 1976 to replace the Penn Central and six other bankrupt railroads.

Conrail represents a frustration and an opportunity to the FRA. When Congress took control of the bankrupts' reorganization in 1973, it pointedly avoided delegating authority for control to the FRA, on the premise that the appearance of nationalization must be avoided at all costs. Instead, the United States Railway Association was chartered as a quasi-public corporation and given the charge of designing and overseeing the reorganization of what eventually became Conrail. The USRA, relative to the FRA, continues to enjoy strong support from the Conrail constituency, and, according to Traffic World, the FRA attitude toward the USRA has consequently been one of unalloyed "resentment." Interagency relationships have been icy and much duplication of effort exists, though this in itself is not unusual in transportation regulation (see adjoining list of pertinent regulatory authorities).

But for those who aspire to become brokers in the game of redrawing the nation's rail map, Conrail, with its complete access to all important eastern markets, represents the biggest plum there is. Consequently, in February and March 1980, the FRA mounted an all-out effort to disband the USRA and absorb its functions, thus seizing control of Conrail.

The bureaucratic scrap began with a minor amendment slipped into the Amtrak Restructuring Act of 1979, calling for the USRA, the FRA, and the Department of Justice to study the feasibility of transferring USRA activities to the other two agencies. (Justice would be involved to the extent of litigating the claims still outstanding as a result of the conveyance of the bankrupt railroads to Conrail, lawsuits that are still mostly pending.) The amendment was the work of a disgruntled USRA employee, an official of the Department of Transportation, and a key congressional aide, according to Traffic World.

To no one's surprise, the Department of Justice wanted nothing to do with Conrail litigation that was already well along, and said so in a report last March. The joint USRA/FRA report due at that time, however, did not appear because the agencies could not agree on language suitable to both.

The bone of contention was the USRA's phase-out, not any serious disagreement over issues. In a joint FRA/USRA staff report published in late 1979, the agencies had already spelled out an approach to Conrail restructuring that can only be described as modern-day political robber baron-ism. A free-market disposition of Conrail's lines was not to be allowed. Instead,

The planning and management of any controlled transfer should be undertaken by a public agency that is responsible for fulfilling the following three primary functions:

• Design of packages—that is, the combinations of Conrail key and tight density lines—to be acquired by other railroads.

• Solicitation of interest for potential transfers and structuring of the conveyance process.

• Control of the conveyance process to assure satisfactory results.

By establishing competitive regional balances and ensuring the continuation of essential services, the packages would be designed to assure that the transfers would be in the public interest.…The form of the restructured system would be decided in large part by the determination of which carriers would be eligible to participate. Were participation extended to all solvent carriers in the Western, Southern, and Eastern Districts, the result could be a restructured national rail system.

The upshot of the agencies' 1980 struggle for control over this process was that the USRA won, meaning that it got Conrail for a sandbox while the FRA got the rest of the rail industry. But USRA's victory proved to be short-lived. As this issue was going to press in January, DOT took over ownership of Conrail's stock (which had been expected to go to USRA upon settlement of creditors' claims, for $2.1 billion). In effect, Conrail has just been nationalized. What DOT intends to do with its ownership remains to be seen.

Whatever the eventual outcome, the stakes are high. Even FRA-style restructuring advocates such as former Penn Central trustee Jervis Langdon remember that in 1972, when PC sought to bail itself out by putting portions of the railroad on the auction block, several western railroads actively bid on segments of Penn Central and thus exposed their strong interest in maintaining good rail connections to eastern markets. That was before the federal government, at the instigation of the Union Pacific Railroad, stepped in with its Conrail "solution" guaranteeing eastern access at taxpayer expense. Now that Conrail has been nationalized, the key question will be whether DOT intends to sell off its key properties—or to make Conrail the cornerstone of FRA's national(ized) rail system.

LIFE WITHOUT THE FRA Whatever happened to the Federal Railroad Administration as, on the conventional view, a relatively harmless surrogate for the support institutions that the railroads could (and would, in a free market) provide for themselves? The evidence is that the FRA long ago went beyond the functions that rationalized its existence: serving as a fount of research and development and an easy mechanism for providing centralized enforcement of standard, universal safety regulations.

The conventional view of the FRA as a harmless support institution just doesn't match the facts. The FRA has worked aggressively, at several levels, to assume control over the substance and functioning of American railroads. With its ideal system map as a blueprint, the agency has bestowed federal subsidies upon its chosen "winners," leaving the "losers" to struggle and die. Moreover, it has actively worked to thwart innovations, both managerial (Farm-Rail) and technological (RoadRailer), that the private sector has developed—and that hold the promise of revitalizing railroads without government subsidies.

Of course, if railroads can return to health without federal aid, the FRA will be left without its principal lever for compelling restructuring in accordance with its master plan. Thus, the FRA's actions are quite understandable—and quite consistent with its drive to achieve control of the industry.

The question, then, is not whether the FRA's research, safety standards, and subsidies are "worth the price" in increased control—for it is clear that, unless checked soon, that control will become near total. The real question is whether there is any justification for an FRA at all, even for research and safety standards.

In the area of research, the lesson of the FRA's attempt in the late '70s to build an ideal pig car should not be ignored. When the railroads require new technology, they and their suppliers are perfectly capable of meeting the challenge. In fact, their efforts are far superior to those of the FRA.

And in the area of safety and efficiency standards, an alternative already exists—the Association of American Railroads. Long before life was breathed into the FRA, the AAR and its predecessors were developing standards that would permit the interchange of cars among all of the nation's railroads. Entirely on its own, without any help from government, the railroad industry developed and put into use a standard track gauge (a distance between rails of 4 feet, 8½ inches), a standard automatic coupler design, a standard air brake system, and even the nationwide system of standardized time zones.

The alternative to the FRA is simply to let the AAR resume its historic role and become fully responsible for developing safety rules and standards and encouraging and funding R&D. Neither the public nor rail employees are directly protected from unsafe conditions by the FRA, anyway. Railroads have to pay fines to the FRA for safety-rule violations, but innocent bystanders and railroad workers must turn to the courts for recourse. The best way to secure public safety is to have self-insured railroads that understand their full liability for the consequences of any accidents.

Thus, the most basic rationales for the existence of a Federal Railroad Administration have no foundation in the facts. We do not need an FRA to develop rail technology or promote rail safety. What the railroads do need is an extension of deregulation beyond the fainthearted reforms made recently at the Interstate Commerce Commission, an extension that will eliminate the FRA and other political interests that presume to dictate management and consumer choices and that thereby forestall the rail renaissance that has been predicted for the last 20 years but somehow always remained around the corner.

William D. Burt has an M.S. in transportation planning and management. He has worked as a congressional staffer and for political organizations. Since completing this piece, he has joined Bi-Modal Corporation.


RAIL DEREGULATION? NOT YET! Recent regulatory reform legislation passed by Congress has led many to believe that railroads are now deregulated. Not so, as the following list of railroading's regulators demonstrates.

Federal Railroad Administration (Department of Transportation) administers the federal laws regulating safety on the railroads, administers federal assistance, and has authority to propose transfers of property or rail service supplemental to the transfers of rail properties that created Conrail.

United States Railway Association provides funds to, and monitors the performance of, Conrail and can propose supplemental transactions involving Conrail.

Coast Guard (DOT) regulates railroad bridges across navigable waters of the United States.

Interstate Commerce Commission regulates the certification, rates, purchases, mergers, consolidations, and acquisitions of control, discontinuance of service, and abandonments of railroads.

Department of Labor enforces Executive Order 11246, which prohibits government contractors from discriminating against employees or applicants for employment because of race, color, religion, sex, or national origin. In addition, DOL has authority to regulate working conditions that affect railroad employees.

National Mediation Board and National Railroad Adjustment Board mediate labor disputes between railroads and unions.

Railroad Retirement Board administers federal retirement-survivor and unemployment-sickness benefit programs.

Environmental Protection Agency issues regulations to control and abate pollution by the railroads in the areas of air, water, solid waste, noise, and toxic substances.

Securities and Exchange Commission requires the filing of periodic financial statements by railroads registered under the Securities and Exchange Act of 1934.

Federal Communications Commission administers the regulation of radio broadcast by the railroads.

Nuclear Regulatory Commission regulates the containers used to ship nuclear materials.

Department of Health and Human Services has proposed age and handicap discrimination regulations applicable to railroads participating in federally assisted programs and regulates waste disposal on trains (except Amtrak).

National Transportation Safety Board investigates railroad accidents and makes recommendations to government agencies, the railroad industry, and others on safety measures and practices.

(Adapted from Department of Transportation, ABC's of Railroading, May 1979.)

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