A New-Look Surface Transportation Board Should Abandon Obama-era Proposals

Shutterstock/ By Dmitry Natashin

Steve Pociask President, American Consumer Institute
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powerful coalition of businesses recently sent a letter to President Donald Trump urging action from his administration and the U.S. Senate to fill vacant commissioner positions at an obscure yet powerful federal agency known as the Surface Transportation Board (STB).

An independent agency tasked with oversight of the business dealings of freight railroads and their customers, the STB has been shorthanded since 2015, a predicament that has halted action on a handful of significant proposals.

The STB, which regulates rail rates and adjudicates disputes in the industry, is hugely important due to the important role railroads play in U.S. commerce.

Much like energy pipelines and broadband networks, U.S. freight railroads — “among the most developed in the world” according to the Federal Railroad Administration — are a privately financed and viable infrastructure type, and they are essential to U.S. manufacturing and international trade, and critical industries like agriculture and retail.

Inaction on major regulations first proposed during the Obama administration is, in fact, a net positive, as the measures would greatly expand government intervention in this private market, including the potential for onerous controls over freight operations and mandated rate setting —  without any showing of cause and without any benefit to consumers.

If these regulations were to take effect, they would reduce private rail investments and lead to decreased productivity and higher operating costs, which could affect safety and raise consumer prices.

The president still needs to nominate a final commissioner, and the Senate should promptly confirm that nominee alongside the two Republicans who have already cleared the Senate Commerce Committee. Once onboard, the STB should promptly abandon misguided proposals that would reverse decades of precedent by increasing federal involvement in rail rates and operations.

The evidence shows that consumers, shippers and the industry benefit from the current framework created by Congress. Sidestepping Congressional intent by returning to burdensome and unnecessary rules would only undo the benefits.

Observers need to look no further than the past.

In 1887, the Interstate Commerce Commission was created to prevent rail companies from setting abusive rates. But as regulations increased over time, many rail companies became insolvent. Most teetered on bankruptcy as regulations forced rail operators to travel on inefficient and unprofitable routes, and laws prohibited the abandonment of tracks. While rail transportation costs were spiking and increasing the prices of everyday products nationwide, the nation’s attention was quickly drawn away from rail toward the interstate highway system.

The decrepit state of the rail network and high prices became so dire that the government had to choose between a federal bailout, nationalization or deregulation. Wisely, Congress opted in 1980 to partially deregulate railroads to improve consumer welfare as quickly as possible.

Empirical evidence shows that these regulatory reforms worked big time: consumer prices fell dramatically while the industry experienced unparalleled improvements in financial strength and service quality.

Railroad productivity tripled and resulted in falling transportation prices of 44 percent in just 10 years after deregulation. For shippers, lower rail costs yielded 65 percent lower prices; for consumers, this resulted in $10 billion in annual consumer welfare benefits.

Unfortunately, yesterday’s reforms leave ample room today for exploitation and rampant rent-seeking by lobbyists. Notably, some rail shippers want the STB to force rail carriers to use their facilities on behalf of a competitor.

Essentially, it would force railroads to share their traffic and rail lines even at below-market prices. Another measure would even cap the revenues railroads can earn, which will reduce the cash flow operators need to make the private capital investments necessary to ship consumer goods.

These measures would never pass a cost-benefit test a test that has been avoided to date. As a recent report from the American Action Forum reads, “The STB should conduct a thorough analysis of its 2016 proposal before it acts to restrict the market by making it easier for the Board to impose switching requirements on freight railroads.”

The STB owes consumers this upfront analysis, and this explains why so many organizations oppose the re-regulation of private freight carriers, including the American Consumer Institute, Americans for Tax Reform and Heritage Action.

There is no need to fix what is not broken.

Steve Pociask is president of the American Consumer Institute, a nonprofit educational and research organization.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.