Railroad Revitalization and Regulatory Reform Act
Encyclopedia
The Railroad Revitalization and Regulatory Reform Act of 1976, often called the "4R Act," is a United States federal law that established the basic outlines of regulatory reform in the railroad industry and provided transitional operating funds following the 1970 bankruptcy
of Penn Central Transportation Company. The law approved the "Final System Plan" for the newly-created Conrail and authorized acquisition of Northeast Corridor
tracks
and facilities by Amtrak
.
The Act was the first in a series of laws which collectively are described as the deregulation
of transportation in the United States. It was followed by the Airline Deregulation Act
(1978), Staggers Rail Act
(1980), and the Motor Carrier Act
of 1980.
created Amtrak to take over the failed company's intercity passenger train service, under the Rail Passenger Service Act. Congress passed the Regional Rail Reorganization Act of 1973 (the "3R Act") to salvage viable freight operations from Penn Central and other failing rail lines in the northeast, mid-Atlantic and midwestern regions, through the creation of ConRail. ConRail began operations in 1976.
The "Declaration of policy" in the Act (Section 101), was as follows:
(a) Purpose
It is the purpose of the Congress in this Act to provide the
means to rehabilitate and maintain the physical facilities, improve
the operations and structure, and restore the financial stability
of the railway system of the United States, and to promote the
revitalization of such railway system, so that this mode of
transportation will remain viable in the private sector of the
economy and will be able to provide energy-efficient, ecologically
compatible transportation services with greater efficiency,
effectiveness, and economy, through -
(1) ratemaking and regulatory reform;
(2) the encouragement of efforts to restructure the system on a
more economically justified basis, including planning authority
in the Secretary of Transportation, an expedited procedure for
determining whether merger and consolidation applications are in
the public interest, and continuing reorganization authority;
(3) financing mechanisms that will assure adequate
rehabilitation and improvement of facilities and equipment,
implementation of the final system plan, and implementation of
the Northeast Corridor project;
(4) transitional continuation of service on light-density rail
lines that are necessary to continued employment and community
well-being throughout the United States;
(5) auditing, accounting, reporting, and other requirements to
protect Federal funds and to assure repayment of loans and
financial responsibility; and
(6) necessary studies.
(b) Policy
It is declared to be the policy of the Congress in this Act to -
(1) balance the needs of carriers, shippers, and the public;
(2) foster competition among all carriers by railroad and other
modes of transportation, to promote more adequate and efficient
transportation services, and to increase the attractiveness of
investing in railroads and rail-service-related enterprises;
(3) permit railroads greater freedom to raise or lower rates
for rail services in competitive markets;
(4) promote the establishment of railroad rate structures which
are more sensitive to changes in the level of seasonal, regional,
and shipper demand;
(5) promote separate pricing of distinct rail and rail-related
services;
(6) formulate standards and guidelines for determining adequate
revenue levels for railroads; and
(7) modernize and clarify the functions of railroad rate bureaus.
The financial assistance provisions of the Act were largely palliative and transitional. They were extended on the condition that changes in the regulatory system governing railroads be enacted, with the hope that a regulatory system which gave railroads more freedom in pricing and service arrangements, subject to greater competitive constraints, would yield a more viable industry and better service for its users. Studies of the legislative history of the Act indicate that the Gerald Ford
administration secured the regulatory provisions only by threatening a veto of any act containing financial assistance for railroads but no reform of the regulatory system.
The changes in regulation provided for were as follows:
In a signing statement, President Ford stated,
(ICC) at the time of law's enactment were highly unsympathetic to the aims and provisions of the 4R Act. The regulatory provisions had been enacted over several commissioners' objections, and the Commission's implementation of the Act initially had little impact on the way the rail industry functioned.
When President Jimmy Carter
nominated A. Daniel O’Neal (originally appointed by President Richard Nixon
) to chair the ICC, O’Neal began to develop the possibilities for opening up the rail market to competition and innovation. Also, in 1978 a group of major railroads formed an organization called TRAIN (Transportation by Rail for Agricultural and Industrial Needs) to support further deregulation of the industry. These carriers’ perception was that with collective rate making limited, and a Commission apparently more interested in letting their rates go down than go up, the regulatory system, as a whole, in the net, no longer favored them.
Large shippers of goods by rail also wished to have more flexibility in the rail market. The net result of compromise between the carriers and the shippers, and the Jimmy Carter
administration’s push for a more competitive transport was the Staggers Act of 1980. The Staggers Act worked from the 4R Act template, but extended its provisions. One of the key changes from the 1976 Act was allowance of secret contracts between carriers and shippers, not limited to large-investment situations and not effectively subject to regulatory review. According to former Congressional Budget Office
analyst Christopher Barnekov, such contracts allowed the rail carriers and their shippers much more opportunity readily to develop more efficient transport arrangements which lowered costs for the carriers, yielding better returns for the carriers and lower rates for the shippers.
Thus railroad "deregulation" was a two step process, starting with the 4R Act and concluding with the Staggers Act. In substance, the railroad regulatory reform legislation, in the 1970-1980 period, turned toward greater use of market systems to deal with the problems of the rail industry in the United States, rather than resorting to nationalization
, which had been considered from time to time.
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
of Penn Central Transportation Company. The law approved the "Final System Plan" for the newly-created Conrail and authorized acquisition of Northeast Corridor
Northeast Corridor
The Northeast Corridor is a fully electrified railway line owned primarily by Amtrak serving the Northeast megalopolis of the United States from Boston in the north, via New York to Washington, D.C. in the south, with branches serving other cities...
tracks
Rail tracks
The track on a railway or railroad, also known as the permanent way, is the structure consisting of the rails, fasteners, sleepers and ballast , plus the underlying subgrade...
and facilities by Amtrak
Amtrak
The National Railroad Passenger Corporation, doing business as Amtrak , is a government-owned corporation that was organized on May 1, 1971, to provide intercity passenger train service in the United States. "Amtrak" is a portmanteau of the words "America" and "track". It is headquartered at Union...
.
The Act was the first in a series of laws which collectively are described as the deregulation
Deregulation
Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or simplification of government rules and regulations that constrain the operation of market forces.Deregulation is the removal or...
of transportation in the United States. It was followed by the Airline Deregulation Act
Airline Deregulation Act
The Airline Deregulation Act is a United States federal law signed into law on October 24, 1978. The main purpose of the act was to remove government control over fares, routes and market entry from commercial aviation...
(1978), Staggers Rail Act
Staggers Rail Act
The Staggers Rail Act of 1980 is a United States federal law that deregulated the American railroad industry to a significant extent, and replaced the regulatory structure that existed since the 1887 Interstate Commerce Act.-Background:...
(1980), and the Motor Carrier Act
Motor Carrier Act of 1980
The Motor Carrier Regulatory Reform and Modernization Act, more commonly known as the Motor Carrier Act of 1980 is a United States federal law which deregulated the trucking industry.-Background:...
of 1980.
Background
Following the massive bankruptcy of the Penn Central in 1970, CongressUnited States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
created Amtrak to take over the failed company's intercity passenger train service, under the Rail Passenger Service Act. Congress passed the Regional Rail Reorganization Act of 1973 (the "3R Act") to salvage viable freight operations from Penn Central and other failing rail lines in the northeast, mid-Atlantic and midwestern regions, through the creation of ConRail. ConRail began operations in 1976.
Overview of law
The 4R Act:- implemented the ConRail "Final System Plan," as formulated by the United States Railway AssociationUnited States Railway AssociationThe United States Railway Association was a government-owned corporation created by United States federal law that oversaw the creation of Conrail, a railroad corporation that would acquire and operate bankrupt and other failing freight railroads...
, and which specified the rail lines that Conrail would receive - provided operating funds for ConRail, which had not received direct federal funds under the 3R Act. Initial funding for 1976 was $484 million (in 1986 dollars)
- authorized Amtrak to acquire rights of way, tracks, and related facilities (such as train stationTrain stationA train station, also called a railroad station or railway station and often shortened to just station,"Station" is commonly understood to mean "train station" unless otherwise qualified. This is evident from dictionary entries e.g...
s) for the Northeast Corridor (NEC) rail line between Washington, D.C.Washington, D.C.Washington, D.C., formally the District of Columbia and commonly referred to as Washington, "the District", or simply D.C., is the capital of the United States. On July 16, 1790, the United States Congress approved the creation of a permanent national capital as permitted by the U.S. Constitution....
and BostonBostonBoston is the capital of and largest city in Massachusetts, and is one of the oldest cities in the United States. The largest city in New England, Boston is regarded as the unofficial "Capital of New England" for its economic and cultural impact on the entire New England region. The city proper had... - provided initial funds to Amtrak of approximately $85.2 million for the NEC acquisition.
- significantly reduced federal regulation of railroads for the first time since passage of the 1887 Interstate Commerce Act.
The "Declaration of policy" in the Act (Section 101), was as follows:
(a) Purpose
It is the purpose of the Congress in this Act to provide the
means to rehabilitate and maintain the physical facilities, improve
the operations and structure, and restore the financial stability
of the railway system of the United States, and to promote the
revitalization of such railway system, so that this mode of
transportation will remain viable in the private sector of the
economy and will be able to provide energy-efficient, ecologically
compatible transportation services with greater efficiency,
effectiveness, and economy, through -
(1) ratemaking and regulatory reform;
(2) the encouragement of efforts to restructure the system on a
more economically justified basis, including planning authority
in the Secretary of Transportation, an expedited procedure for
determining whether merger and consolidation applications are in
the public interest, and continuing reorganization authority;
(3) financing mechanisms that will assure adequate
rehabilitation and improvement of facilities and equipment,
implementation of the final system plan, and implementation of
the Northeast Corridor project;
(4) transitional continuation of service on light-density rail
lines that are necessary to continued employment and community
well-being throughout the United States;
(5) auditing, accounting, reporting, and other requirements to
protect Federal funds and to assure repayment of loans and
financial responsibility; and
(6) necessary studies.
(b) Policy
It is declared to be the policy of the Congress in this Act to -
(1) balance the needs of carriers, shippers, and the public;
(2) foster competition among all carriers by railroad and other
modes of transportation, to promote more adequate and efficient
transportation services, and to increase the attractiveness of
investing in railroads and rail-service-related enterprises;
(3) permit railroads greater freedom to raise or lower rates
for rail services in competitive markets;
(4) promote the establishment of railroad rate structures which
are more sensitive to changes in the level of seasonal, regional,
and shipper demand;
(5) promote separate pricing of distinct rail and rail-related
services;
(6) formulate standards and guidelines for determining adequate
revenue levels for railroads; and
(7) modernize and clarify the functions of railroad rate bureaus.
The financial assistance provisions of the Act were largely palliative and transitional. They were extended on the condition that changes in the regulatory system governing railroads be enacted, with the hope that a regulatory system which gave railroads more freedom in pricing and service arrangements, subject to greater competitive constraints, would yield a more viable industry and better service for its users. Studies of the legislative history of the Act indicate that the Gerald Ford
Gerald Ford
Gerald Rudolph "Jerry" Ford, Jr. was the 38th President of the United States, serving from 1974 to 1977, and the 40th Vice President of the United States serving from 1973 to 1974...
administration secured the regulatory provisions only by threatening a veto of any act containing financial assistance for railroads but no reform of the regulatory system.
The changes in regulation provided for were as follows:
- Section 202 provided that rail rates would not be considered ‘unjust and unreasonable’ if they exceeded long run marginal costs (on the low side) and (as to the high side) applied to traffic as to which the railroads did not have ‘market dominance’ (a term related to concepts of monopoly power). The railroads were to be allowed to explore this ‘zone of reasonableness’, with presumptions against suspension or challenge of proposed rates, at a rate of 7% per year.
- Section 206 provided for, in substance, contract rates for transactions involving an investment of more than $1 million dollars.
- Section 207 provided the Commission with authority to exempt from regulation entirely categories of traffic, upon making findings, in substance, that regulation was unnecessary.
- Section 208 prohibited collective rate making on movements which a rail carrier could handle entirely on its own system (‘single line rates’), and buttressed the right of ‘independent action’ by rail carriers.
In a signing statement, President Ford stated,
"In addition to providing short-term financial assistance, Congress in approving this legislation has taken a fundamental step to restore the long-term economic health of this vital American industry. The regulatory reform provisions in this bill are long overdue, and I commend the Congress for this farsighted and necessary action.
This kind of fundamental change in government policy takes time. Every President since Harry S. Truman has called in vain for increased competition and reform of our regulated industries. For example, the Landis Report commissioned by President-elect Kennedy in 1960 recommended major policy revisions in transportation regulation. But for more than a quarter of a century, the Nation has had no results. In contrast, the Railroad Revitalization and Regulatory Reform Act is the first significant reform of transportation regulation by any administration--or Congress.
An equally important task facing us now is to extend the principles of reform embodied in this legislation to the aviation and motor carrier industries. In these industries, we must strive to create a regulatory climate which relies on competitive forces, rather than on inflexible and bureaucratic directives of Federal agencies, to determine which firm will provide the desired transportation services and at what price. The time has come to place greater reliance on market competition."
Initial reaction to the act
Many of the members of the Interstate Commerce CommissionInterstate Commerce Commission
The Interstate Commerce Commission was a regulatory body in the United States created by the Interstate Commerce Act of 1887. The agency's original purpose was to regulate railroads to ensure fair rates, to eliminate rate discrimination, and to regulate other aspects of common carriers, including...
(ICC) at the time of law's enactment were highly unsympathetic to the aims and provisions of the 4R Act. The regulatory provisions had been enacted over several commissioners' objections, and the Commission's implementation of the Act initially had little impact on the way the rail industry functioned.
When President Jimmy Carter
Jimmy Carter
James Earl "Jimmy" Carter, Jr. is an American politician who served as the 39th President of the United States and was the recipient of the 2002 Nobel Peace Prize, the only U.S. President to have received the Prize after leaving office...
nominated A. Daniel O’Neal (originally appointed by President Richard Nixon
Richard Nixon
Richard Milhous Nixon was the 37th President of the United States, serving from 1969 to 1974. The only president to resign the office, Nixon had previously served as a US representative and senator from California and as the 36th Vice President of the United States from 1953 to 1961 under...
) to chair the ICC, O’Neal began to develop the possibilities for opening up the rail market to competition and innovation. Also, in 1978 a group of major railroads formed an organization called TRAIN (Transportation by Rail for Agricultural and Industrial Needs) to support further deregulation of the industry. These carriers’ perception was that with collective rate making limited, and a Commission apparently more interested in letting their rates go down than go up, the regulatory system, as a whole, in the net, no longer favored them.
Large shippers of goods by rail also wished to have more flexibility in the rail market. The net result of compromise between the carriers and the shippers, and the Jimmy Carter
Jimmy Carter
James Earl "Jimmy" Carter, Jr. is an American politician who served as the 39th President of the United States and was the recipient of the 2002 Nobel Peace Prize, the only U.S. President to have received the Prize after leaving office...
administration’s push for a more competitive transport was the Staggers Act of 1980. The Staggers Act worked from the 4R Act template, but extended its provisions. One of the key changes from the 1976 Act was allowance of secret contracts between carriers and shippers, not limited to large-investment situations and not effectively subject to regulatory review. According to former Congressional Budget Office
Congressional Budget Office
The Congressional Budget Office is a federal agency within the legislative branch of the United States government that provides economic data to Congress....
analyst Christopher Barnekov, such contracts allowed the rail carriers and their shippers much more opportunity readily to develop more efficient transport arrangements which lowered costs for the carriers, yielding better returns for the carriers and lower rates for the shippers.
Thus railroad "deregulation" was a two step process, starting with the 4R Act and concluding with the Staggers Act. In substance, the railroad regulatory reform legislation, in the 1970-1980 period, turned toward greater use of market systems to deal with the problems of the rail industry in the United States, rather than resorting to nationalization
Nationalization
Nationalisation, also spelled nationalization, is the process of taking an industry or assets into government ownership by a national government or state. Nationalization usually refers to private assets, but may also mean assets owned by lower levels of government, such as municipalities, being...
, which had been considered from time to time.
External links
- Full text of law: 45 USC Chapter 17 - Railroad Revitalization and Regulatory Reform (as amended)