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Second quarter 2022

Infrastructure’s Public-Private Partnerships

The trillion-dollar Infrastructure Investment and Jobs Act passed by Congress in 2021 promises epochal transformation of the country’s intermodal transportation systems, a game-changer for investment in public-private projects. Representatives of the Association of American Railroads and other public advocates told Intermodal Insights what to expect from President Biden’s signature legislation.

Railroads are a key intermodal player but, unlike trucking or ocean shipping, are primarily responsible for the cost of construction, maintenance and operations of track and other infrastructure, as well as the tax burden.

"Years of investment by railroads – averaging some $25 billion annually in recent years – enables carriers to serve their customers safely and efficiently. Intermodal is at the heart of this, a continually growing business segment connected closely to U.S. consumers," says Ted Greener, assistant vice president, public affairs, for AAR.

"Public-private partnerships are important to railroads, which seek to be good partners with the communities in which they operate. The CREATE program in Chicago is perhaps the most prominent example given the outsized presence freight plays in the city’s economy, but railroads are partnering with states and localities across the nation."

Greener says this is especially evident at U.S. seaports, which have played a major role in not only maintaining U.S. economic growth in challenging times but in growing it. "From Georgia to California, PPPs that increase freight-by-rail movements are making freight flows more fluid, taking trucks off highways and in turn reducing emissions. Certainly, passage of the Infrastructure Investment and Jobs Act will only strengthen PPP opportunities and railroads look forward to future partnerships."

The IIJA makes major investments in rail safety, with a focus on grade crossings. This includes spending on the federal Section 130 program, which provides funds to eliminate hazards at highway-rail grade crossings and has helped reduced collisions by 39% since 2000.

"With Section 130 and the new Railroad Crossing Elimination Program, IIJA more than triples federal resources for grade crossing projects," Greener says. "This funding will help meet IIJA’s stated goals of improving safety, reducing emissions, connecting communities, and improving the flow of goods to address supply chain issues."

Greener says that the Federal Railroad Association, which will review applications for the RCEP, will have to balance these statutory criteria.

"The application process should be as streamlined as possible to ensure communities can easily access the money," says Greener. "To that end, we have encouraged FRA to focus the application on only statutorily required materials, be flexible in considering non-federal matches, align required application materials with existing programs, and to provide early guidance and outreach to communities."

Specifically, the IIJA sets $600 million per year for five years in advance appropriations for state, local, county and tribal governments to fund projects to eliminate grade-level railroad crossings.

"These are competitive grants designed to get at the problems we face at crossings," says Melissa Connolly, assistant vice president of government affairs for AAR. "Safety concerns, a nightmare for emissions in stopped cars, and community connection and equity cutting places in half at a time when railroads are running giant Precision Scheduled Railroading trains. We want to keep trains going in a supply chain crisis."

The minimum grant application is $1 million, with smaller grants set aside for planning, environmental review and design. There is a limit on the number of grants to be awarded per state; the final criteria for the grants have yet to be determined. Connolly says the first applications are expected by early summer, and there is a minimum required 20% non-federal share. In-kind donations of land, planning services, etc., for places that can’t afford the projects are also accepted, so there’s an equity piece involved.

"The focus has always been on safety, but there is also a focus on improving mobility for people and goods, so there’s an economic benefit," says Connolly. "The railroads are excited about it and a number of states are excited about it. The operating railroad must approve each project, and those conversations should be happening now. We are happy to help states make those connections."

Greener acknowledges that intermodal development would not be possible without continued investment by private players reacting to market pressures.

"So many parts of the intermodal sector – railroading, trucking, chassis companies, containers – are driven most by the private sector," says Greener. "These actors react to market realities. While much has been made of the great supply chain disruptions since 2020, the integrated supply chain is still a modern miracle. This would not be possible without continued investment. To the extent that the sector can attract more investment – private or public – intermodal movement will benefit."

A major transportation industry advocacy group is enthused about the possibilities for the IIJA.

"The intermodal freight network represents a unique mix of public and private infrastructure, working together to move goods in a highly efficient and reliable manner," says Elaine Nessle, executive director of the Coalition for America’s Gateways and Trade Corridors. "Private companies, such as railroads and terminal operators, have invested billions into their own networks and infrastructure.

Private sector contributions work to complement and also to encourage public sector investments along the freight network."

Nessle, whose group’s membership includes transportation associations, major ports, state and local government agencies, and rail, trucking and engineering companies, says public-private partnerships can be a particularly useful tool in developing intermodal infrastructure because there are many opportunities to generate an income stream to repay the private investment in a financing arrangement. Where government funding is concerned, however, there is room for improvement.

"Some private financiers have expressed concern with investing capital in a project that may have a protracted approval process to begin construction," she says. "Improved project delivery timelines, for example, would likely allow for more private participation."

While the IIJA funding more safety improvements is welcome, Nessle says public investment in intermodal freight transportation has been inadequate for years.

"It was easy to ignore for a long time – the system was nimble and resilient enough to continue functioning well when disturbances occurred. Until now. Across the freight system, all excess capacity has been zapped. The many elements working in concert – workforce, equipment availability, infrastructure – have fallen out of sync and the result is dinner table conversation about supply chain woes. The new Bipartisan Infrastructure Law presents a tremendous opportunity to make investments that support the demands of tomorrow. The bill contains significant funding, but the investments must be made in strategic freight assets, taking into consideration key freight gateways and corridors."

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