ASLRRA PERSPECTIVE, RAILWAY AGE DECEMBER 2024 ISSUE: The election is over, and the results are in. I went to bed in the early morning hours of Nov. 6 and enjoyed a remarkable dream. In his victory speech, the President-elect promoted his tax cut proposals and called out the short line tax credit as a poster child for the kind of tax policy that is good for small business and good for America. Every House and Senate co-sponsor of the 2020 BRACE Act that made 45G permanent was reelected, and scores of those Members had highlighted their support for the credit in their campaign literature. And in an apparently overlooked footnote in the Project 2025 document, short line freight railroads were listed as one of the most important drivers of U.S. economic growth, and incoming White House Chief of Staff Susie Wiles said the next Secretary of Transportation should take that message to heart.
Alas, I woke up to discover none of that was true. The truth is that short lines have their work cut out for them, particularly regarding the 45G Short Line Rehabilitation Tax Credit.
First enacted in 2004, 45G provides a credit of 40 cents for every dollar a short line invests in track and bridge improvement, up to a credit cap of $3,500 per mile. The credit worked exactly as intended by allowing an industry that operates nearly 30% of the national freight network to bring back to life previously under-maintained low density branch lines otherwise headed for abandonment.
Modernized track has allowed for carload growth on short lines and growth for the freight rail industry, as one in five cars begins or ends its journey on a short line railroad, interchanging with Class I railroads to access U.S. and overseas markets. Infrastructure investment also mitigates the primary reason for derailments on short lines—worn out track—thus improving safety.
A success story to be sure, but a story that needs a new chapter. Short lines are one of the most capital-intensive industries in the county and there remains a backlog of more than $12 billion of needed improvements. The tax credit is a powerful tool in addressing that backlog, but inflation and restrictions on eligible track are eroding its potency. The costs to maintain and upgrade railroad track are significantly higher today than 20 years ago and $3,500 doesn’t buy what it used to. Additionally, short line track created since 2015 is ineligible for the credit.
The solution is straightforward and is embodied in legislation that will be introduced in the next Congress by Representatives Mike Kelly (R-Pa.) and Mike Thompson (D-Calif.) in the House, and Senators Mike Crapo (R-Idaho) and Ron Wyden (D-Ore.) in the Senate. The legislation would increase the credit cap to $6,100 per mile, index the cap to inflation, and allow eligibility for all short line track in existence as of Jan. 1, 2024.
After its 2004 enactment, 45G was extended six times and finally made permanent in 2020. Each time the legislation secured a huge bipartisan majority of House and Senate co-sponsors, which was a necessity in giving this legislation the visibility and momentum needed to break through the complex and often arbitrary politics of legislative sausage making. Co-sponsors were earned one at time by an aggressive and time-consuming short line effort to educate Members of Congress on the importance of short line railroads for shippers, jobs, and economic growth, particularly in rural and small-town America.
In 2020, the legislation to make 45G permanent garnered 364 House and Senate co-sponsors. We believe something similar is necessary to get the job done again. But only 175 of those co-sponsors will still be in office when the new Congress convenes in January. That means we will need to educate and recruit nearly 200 Members of Congress who have limited, if any, knowledge about short lines and who will know nothing about the working of the credit and its benefit. Complicating that task even further, time is not on our side. Enacting the new Administration’s tax proposals will be the priority of the new Republican Congress, which will endeavor to complete by mid-year through a budget reconciliation bill. That legislation will be the only vehicle available for tax provisions, and we will be competing with hundreds of other provisions seeking inclusion in that vehicle.
Our lead Congressional sponsors have already begun setting the stage for this effort with the introduction of legislation this fall as the 118th Congress was coming to an end. The legislation will have to be reintroduced when the 119th Congress begins in January, but the current bill gives us the opportunity to begin organizing and executing our co-sponsor campaign now so we can hit the ground running in January.
Short line owners and executives can help by introducing themselves now to new elected officials, and touch base with those returning about signing on to the legislation. The time to build a bridge is before the water begins rising.
As in the past, our best opportunity to recruit co-sponsors is through in-person connections, in home districts or in D.C. We need these to happen early and often. We will provide a key opportunity at our 2025 Railroad Day on the Hill event, scheduled for May 7, but don’t wait until then to act!
When that date comes though, given the challenges we face on this legislation as well as on the important issues of CRISI funding, truck size and weights, and rail safety, we need every short line in the country to send a representative so that my election-night dream does not turn into a post-election nightmare.
Further Reading: Forget H.R. 25, the Fair Tax Act. 45G Is What Counts
