The federal panel with surprising power

At the end of the last Congress, the Senate confirmed a flurry of nominations to federal agencies.  One such agency, the Surface Transportation Board, will have a particularly unique opportunity to promote economic growth across the country. 

The STB is a surprisingly important adjudicatory and regulatory panel because it has a direct impact on the viability of privately-owned freight railroads, which touch nearly every sector of our economy, from consumer goods to energy products, and from automobiles to lumber used to build homes. Though the railroad industry was partially deregulated in 1980, the agency maintains economic oversight of the industry’s business dealings and serves a crucial role adjudicating and mediating disputes between railroads and their customers.

{mosads}Thus, STB actions can have major consequences, depending on how it implements its authority through regulation. Ill-advised actions by the STB – for example, attempting to micromanage routing and railroad pricing decisions – could ripple throughout the 140,000 mile U.S. rail network. That would hinder U.S. commerce and ultimately increase consumer costs.

The right balance must be struck between government regulation and market forces, a balance that does not hinder economic activity. It’s a theme appreciated and understood by many policy experts in Washington – and is hopefully valued by the new members at the STB. While everyone agrees that the STB, like most of government, can be made more efficient, most observers would agree that the system in place today works well for the U.S. economy.

Indeed, the STB has a real opportunity to leave its mark in ensuring viable transportation options for the future, and it can make progress in that regard by scrapping a handful of regulatory proposals.

For instance, the STB should rescind a proposal that would force a railroad to move customer freight cars over its tracks and then hand them over to competitors. Such a proposal would disrupt railroad operations in the U.S and would clearly deter investment. Why would any business continue to substantially invest if it could not reap the benefits of its investment? The proposal lacks any credible regulatory impact analysis – as detailed recently by analysts at the American Action Forum and Mercatus Center.

The STB commissioners should also scuttle possible changes to a complex regulation known as revenue adequacy. Placed on the books decades ago, this measure was originally intended to ensure that each railroad earn at least enough return on investment to sustain its network now and in the future.

But instead of annually determining which carriers, if any, earn enough revenue to be deemed revenue adequate, the concern is that the STB could use revenue adequacy to force railroads to lower prices or pay refunds for select shippers. The STB should reject calls to use this measure as a cap on railroad revenue without any consideration of the market demand for railroad service, which is sorely needed to safely serve customers.

Given that railroads, unlike other freight transportation modes, fully cover the costs of their privately-owned infrastructure, STB policies should encourage investment, not deter it.

When Congress reauthorized the STB in 2015, it explicitly refrained from directing the STB to make major changes. For the benefit of the U.S. economy, we should all hope that the STB seizes the opportunity to stand up for a remarkably successful framework.

Ian Jefferies is president and CEO of the Association of American Railroads.