From the early days of railroading, some states claimed the right to control abandonment of track by virtue of the railroad company's charter of incorporation. Abandonments were handled by law suits in the courts, or in some states by a railroad or public utility commission. In l907, Minnesota granted to a commission the authority to control abandonments. In l9l9 a Michigan law “provided that the state commission should not consent to an abandonment that was incompatible with the public interest (Cherington, l948).” The general idea was that acceptance of special privileges by a railroad corporation (e.g., eminent domain, monopoly position, public assistance) involve a contractual agreement, express or implied, not to discontinue operation against the will of the state. The legal theory and practical motivation were expounded in an extended dictum in Gates v. Boston and N.Y. Air Line RR Co. (53 Conn. 333, 5 Atl. 695, 1885). A more concise statement came from the Supreme Court of Kansas (Naylor v. Dodge City, Montezuma & Trinidad R.R. Co., 36 Pac. 747, 748, l894):

The railroad corporation takes its franchises subject to the burden of a duty to the public to carry out the purposes of the charter. The road, when constructed, becomes a permanent instrumentality, and the roadbed, superstructure, and other permanent property of the Corporation all are devoted to public use. From this use neither the cor-poration itself, nor any person, company or corporation deriving its title by purchase … can divert it without the assent of the state (36 Pac. 747, 748, l894).

The Transportation Act of 1920

Around l916, the number of abandonments began to increase significantly, and interest in controlling them grew in the state legislatures and then in the Congress. Eventually, the Transportation Act of 1920 gave the Interstate Commerce Commission (ICC) virtually complete control over railroad abandonments. The law required the ICC to grant railroads a certificate of public convenience and necessity before a line could be abandoned. The Commission's task regarding abandonments was to balance the losses of the carriers and the economic impact of abandonment on the shippers and communities involved (Harper 1982).

Balancing these interests was no easy task. There was always the concern that abandonment would be granted too freely, so federal policy typically required railroads to cross subsidize unprofitable operations on socially desirable lines with profits earned elsewhere in the system. Local interests were protected by the view that a rail line may not be abandoned even if it was being operated at a loss as long as the corporation's overall system showed a profit (see State of Iowa v. Old Colony Trust Co., 215 Fed. 307, l914). The railroad’s obligation to serve ceased only if the corporation's entire railroad system was operating at a loss. A state requiring continued operation through “internal cross subsidization” would be depriving the corporation of property without due process of law. This doctrine was applied by state courts for some time, and just before passage of the Transportation Act of 1920 it was finally confirmed by the United States Supreme Court in Brooks-Scanlon Company v. Railroad Commission of Louisiana (251 U.S. 396, 40 Sup. Ct. 183, l920). This policy was upheld for many years, as noted by a federal court which said, "… we hold that no confiscation results from an order … denying the abandonment of rail services which are shown to be responsible, as long as there is no net loss to the over-all system (Northwestern Pacific R. Co. v. United States, 228 F. Supp. 690, 694, l964).”

Recent Rail Abandonment Policy

Following the collapse of the Penn Central and several smaller railroads in the northeastern United States during the early 1970s, federal legislation was enacted to reorganize the bankrupt railroads and to plan for the rail transportation needs of the 17 states affected. Congress recognized that the railroads could no longer be expected to cross subsidize the operation of unprofitable branch lines internally, but they also felt a responsibility to protect the interest of shippers and communities depending on rail service. In their attempt to balance the needs of all parties, government railroad policy began to change dramatically and a new era of government promotion of railroad freight transportation had begun (Harper 1982).

The Regional Rail Reorganization (3R) Act of 1973 was signed into law in early 1974 (Pub. L. 93-236), providing, among other things, a program for subsidizing light density branch rail lines which had been approved for abandonment but which were considered essential by state and local government officials. The seriousness of problems in the rail industry rapidly became more apparent, and additional legislation in the form of the Railroad Revitalization and Regulatory Reform Act of 1976 (4R Act) (Public Law 94-210), and the Staggers Rail Act of 1980 (Pub. L. 96–448) brought about sweeping changes in both regulation and promotion of railroads in the U.S. By 1995, those changes led to the elimination of the ICC, but the responsibility of balancing the needs of railroads carriers with the concerns of shippers was passed on to the Surface Transportation Board (STB) (Pub. L. 104-88).

The STB is still responsible for balancing the needs of railroads with the concerns of shippers, and the changes that were made with respect to rail abandonment over the years have been preserved and are enforced today by the STB (Office of Public Services 1997). Rail carriers must still obtain permission from the federal government to abandon a rail line, and while legislation eliminated internal cross subsidization as a condition to reject abandonment applications, carriers must still show how continued operation of a line would be a burden. The carrier, however, does not have to show that the line would be operated at a loss, and the “opportunity costs” of tying up assets that could earn a better return elsewhere may be considered. Furthermore, if no traffic has moved over a line for at least two years, and no formal complaints have been registered, the carrier can petition for an exemption, thus avoiding the traditional regulatory process (Office of Public Services 1997).

Since the level of traffic on an active line may be insufficient to generate adequate profit for the carrier, an application for abandonment may be filed. In these cases, Congress required that sufficient notice be given to those potentially affected by abandonment and that abandonment decisions would be made in a timely manner. Rail carriers are required to maintain a map of all their rail lines, and identify all lines for which abandonment applications might be filed within the next three years (category 1 lines), and identify lines that are considered to be potential candidates for abandonment (category 2 lines). These system maps must be kept up to date and published in newspapers and circulated in counties in which any category1 lines exist. Furthermore, lines must be shown as category 1 for at least 60 days before an application for abandonment can be filed. When an abandonment is not exempt, there are definite limits on the duration of the procedures. Anyone wishing to protest an abandonment must do so with in 45 days after the application is filed. If an application is investigated, the date of the abandonment must be postponed for a reasonable time in order to complete the investigation, but it must be completed within 120 day (Office of Public Services 1997).

The initial purpose of the 3R Act was to protect shippers and communities in the northeast from adverse economic impacts of rail abandonments brought about by the formation of the Consolidated Rail Corporation (Conrail), and through it was created a program for subsidizing light density branch rail lines which had been approved for abandonment. The 4R Act expanded the program nationwide, and further modifications came with the Local Rail Service Assistance Act of 1978 (Public Law 95-607) and the Northeast Rail Service Act of 1981 (Public Law 97-35). Thus, Congress ensured that alternatives would be available to protect shippers when railroads wanted to abandon light density lines. The legislation required states to develop State Rail Plans in order to qualify for federal funds, and those plans had to be approved by the Federal Railroad Administration (FRA) in the U.S. Department of Transportation (Public Law 94-210). The program evolved from providing operating subsidies for abandoned lines in the northeast to a nationwide program to rehabilitate light density branch lines prior to abandonment and started a wave of state sponsored rail line rehabilitation projects known as the “Feeder Rail Development Program” to help preserve rail services that would otherwise be discontinued (Allen and Vellenga 1983).

The Feeder Railroad Development Program enabled any financially responsible person to force a railroad to sell a line that had been identified as a potential abandonment. This could take place even before an abandonment application was filed. On the other hand, financially responsible parties can prevent an abandonment even though an application has been filed and proceedings are underway. Another important provision in the Staggers Act was that it em-powered the Commission, (and later the STB), upon request, to establish the conditions and amount of compensation, or terms of sale, subject to the statutory guidelines. The decision is binding on both parties, except that the person who had offered to subsidize or purchase the line could withdraw his offer within 10 days of the Commission's decision. Offers to subsidize the carrier's service or purchase the line can guarantee continued rail service to the area (Office of Public Services 1997).

The ability of carriers to petition for exemptions made it easier for carriers to abandon unprofitable rail lines, but when coupled with available funding through the “Feeder Rail Development Program,” the was also much easier for States and private parties to preserve rail service. In fiscal 1982, the Commission noted a substantial increase in abandonment that was attributed largely to enactment of the Northeast Rail Service Act of l981 (NERSA) and the consequent increase in Conrail's authority to abandon rail properties (ICC 1982, p. 38). Under NERSA, the Commission had to grant an abandonment application unless an offer of financial assistance was filed within 90 days of the application date. In 1983, there were 17 offers of financial assistance involving 411 miles of track. Sixteen of the offers 16 were to purchase lines and one was an offer of subsidy (ICC 1983, p. 40).

Acting on concerns over this rapid decline of the rail network, Congress amended the National Trails System Act to create the Rail Banking Program to preserve rail corridors for potential future use (Pub. L. No. 98-11). The law was challenged but the U.S. Supreme Court upheld the Trails Act in 1990 (494 U.S. 1). Rail lines proposed for abandonment can be preserved for future rail use through Rail Banking, and in the interim they can be converted to trails for use by the public. Such use can be requested by either a public agency or by private organization once a rail line has been approved for abandonment (Office of Public Services 1997). As of 2006, there were Rail Banked miles 4,628 in 256 corridors in 34 states plus the District of Columbia (Rails to Trails Conservancy 2006).

In balancing the needs of the public with those of the railroad, the potential effects of abandonment on labor also must be considered. Railroad labor has been a major concern for many years, and Congress has dealt with it in many ways, beginning with the Railway Labor Act of 1920. Financial problems of railroads during the 1970s, however, brought a more specific involvement of Congress, including specific Labor Protective Conditions (LPC) under the 3R Act for railroad employees affected by abandonments (45 U.S.C. 701 et seq.) and were extended by Congress when dealing with employees affected by line abandonments arising out of the bankruptcies of the Milwaukee Railroad (Pub. L. 96-101) and the Rock Island Railroad (Pub. L. 96-264). These policies came under severe criticism (Morton 1975), and in the NERSA (Pub. L. 97-35), Congress relieved the Commission of the responsibility of imposing LPCs when deciding the disposition of lines involving Conrail (45 U.S.C. Sec. 1101). However, Conrail was a special case, and labor protection is still required in most abandonments (Office of Public Services 1997).

In general, there are three provisions for labor protection, depending on the situation. In abandonment cases the Oregon Short Line conditions are imposed, in lease transactions the Mendocino Coast conditions are used, and the New York Dock conditions are imposed cases involving line sales to existing carriers. Employees are not covered by any LPC's whenever a line is acquired by a non-carrier or by a Class III railroad, or in cases of forced sales under the “offer of financial assistance” provisions (Office of Public Services 1997).

Clearly, there is great concern for the impact of rail abandonment on shippers, communities, and labor, but the STB must also consider the effects on rail carriers. Before rejecting an abandonment application, the STB must find “serious, adverse impact on rural and community development (Office of Public Services 1997, p. 10).”

REVIEW OF ABANDONMENT IMPACT LITERATURE

Introduction

There has obviously been a great deal of concern over the loss of rail service, and its potential impact. Government has attempted to balance the interests of the railroads with those of shippers, communities, and labor. However, the question remains as to whether those efforts have been effective or whether there are adverse impacts associated with rail abandonment.

The purpose of this section is to review studies that have examined the nature and level of economic impact associated with rail abandonments and to review the methods and techniques used to measure it. Reviewed first are prospective studies of abandonment. These are studies that have attempted to predict the level of impact before an abandonment is approved. Second, a review of retrospective studies is presented. These studies evaluate the actual impact of rail abandonments that have already taken place. Attention is given to the techniques and models used in the process as well as the level of impact predicted or measured.

Review of Prospective Studies

Tyrchniewicz and Tosterud (1973) developed a modified version of an existing model of plant location based on Stollsteimer (1963) to simulate the effects of various strategies to rationalize the grain handling system of southwest Manitoba. The model expressed total system costs as a function of grain collection costs (from farm to country elevator), handling costs (at the elevator), and distribution costs by rail (from elevator to terminal). Rail rates are legislated in Canada by the federal government and handling rates are established through the Canadian Wheat Board. The simulation was used first to estimate the actual cost to farmers, considering these institutional constraints. Second, it was used to estimate costs based on actual resources used.

The model was run several times to simulate the system taking out 6 light density branch lines, 1 at a time. The order in which the lines were removed was based on an analysis of public hearings. The last simulation was run assuming that all 6 branch lines were abandoned and that all elevators with less than 100,000 bushels capacity on remaining lines were also closed. The lowest cost system in terms of actual costs to farmers was the existing system, but the most efficient system in terms of total resources used was the rationalized system with all six branch lines eliminated.

In June, 1975, the Rail Services Planning Office (RSPO) of the ICC released suggested criteria for state rail planners to use in evaluating the impacts of rail abandonments (RSPO 1975). Section 205 of the 3R Act of 1973 required the RSPO to develop such a criteria to assist state and local agencies in deciding whether to provide operating subsidy on specific rail lines or to permit the rail service to end (Public Law 93 236). The RSPO report suggested that project evaluators should consider the effects of rail abandonments on economic, social, and environmental factors.

According to the report, several economic factors should be considered. These include the effects on employment and income loss in the affected area, the loss of profits to companies affected by the abandonment, government transfer payments to employees and firms, unemployment benefits and/or welfare payments to displaced workers, and loss of tax revenues. Additional economic factors which the report recommended to consider include the impact on shippers' transportation costs, the impact on costs to consumers, the loss of future benefits due to decreased potential for new industrial development and plant expansion, and the decrease in commercial and residential property values which accompany a rail abandonment.

Social factors that the RSPO report suggested should be considered include demographic changes in population distribution, the change in mix of population in rural and urban areas, and changes in lifestyle peculiarities of persons in the affected area. Additional social factors to consider include changes in the diversity of skills among the area's labor force and disruptions in land use plans and zoning regulations. Environmental factors which were suggested to be considered include pollution of air, land, noise, and water.

The RSPO warned that the list of factors was suggested as a guide only, and that no claim was made that it was all-inclusive. In many instances, the factors would need to be used as input to a complete benefit-cost analysis to determine whether the benefits of preventing line abandonments are greater than the cost of preserving rail service. The RSPO made no attempt to describe the benefit-cost analysis process, but it did suggest that any calculation of costs and revenues attributable to a line under evaluation should be based on the rail service needs of the affected area rather than just upon past or present service levels.

Ladd and Lifferth (1975) also developed a location model based on Stollsteimer's (1963) plant location model, which was similar to that of Tyrchniewicz and Tosterud (1973). However, instead of a simulation, they used a heuristic procedure to maximize net revenue to grain producers. Net revenue was defined as gross receipts from the sale of grain minus the costs of transportation from farm to elevator to final destination, and minus the cost of handling at various points in the channel. The process determined the number, size, and location of new sub-terminals, expansions needed in existing country elevators, and the rail network needed to serve a six and one-half county area in north central Iowa. Grain could move from farm to country elevator and then to sub-terminal, or it could move directly to sub-terminals. From sub-terminals, grain moved to final destination (export markets or local processors) by unit train.

Several solutions were obtained based on different rail abandonment plans, different rate structures, and different prices of grain. The highest net revenue was obtained with 10 sub-terminals shipping 50-car unit trains to final destination. Most of the corn and soybean production was shipped to the Gulf export markets. Country elevators handled 48 percent of the grain. Nine percent was shipped from country elevators to final destination by rail and the other 39 percent was shipped by truck to sub-terminals. Sub-terminals received 52 percent of the grain directly from farmers. The system yielded 5.1 cents net revenue per bushel above that of the traditional system moving the same quantity of grain.

Black and Hunke (1975) studied the potential impact of rail abandonment on communities located along four branch lines in Indiana, Iowa, Maine, and Pennsylvania. The authors concluded that in each of the four cases abandonment would lead to negative economic impacts on communities, counties, and the respective states. Increased transportation costs would occur and would eliminate many firms' ability to compete, forcing some out of business and others to layoff workers. Decreases in employment would lead to loss of area income and loss of taxes paid to state and local governments while unemployment compensation claims would increase. However, in most cases, it was anticipated that the actual impact would not be as severe as shippers predicted.

Baumel, et al. (1976) used benefit-cost analysis to evaluate the economics of rehabilitating 71 branch rail lines in Iowa. A Stollsteimer-type plant location model similar to that of Ladd and Lifferth (1975) was used to optimize the flow of grain, fertilizer, and other products from producers to final destinations. Transportation and handling costs for each of the branch lines were determined under two scenarios. First, it was assumed that the branch line was abandoned. Then, it was assumed that the line was upgraded to 263,000 pound carrying capacity, conforming to FHA Class II safety standards (e.g., 25 mph). The difference between the annual transportation and handling costs of the two alternatives was considered the benefits of upgrading a line rather than abandoning it.

Of the 71 branch line studied, 13 had benefit-cost ratios of 0.75 or more. Eight lines had ratios greater than 1.00 under a multiple-car grain rate structure. Most of the lines (56 percent) had ratios of less than 0.25. The authors explain:

The reason why so few Iowa rail lines produced a benefit-cost ratio of at least 1.00 is that there are so many rail lines in the state. The additional distance to get to another rail line in Iowa is short, and the incremental cost of moving products to or from another line is small, compared with the incremental cost of upgrading (Baumel et al. (1976).

The key to an efficient system, the authors note, is volume, and upgrading and maintaining many light density branch lines discourages the accumulation of sufficient volume to significantly reduce transportation and handling costs. The implication is that a system characterized by several large sub-terminals receiving grain from country elevators and shipping to major markets in unit trains is more efficient than one in which most country elevators ship small rail quantities direct to major markets.

The authors also examined the effects of rail abandonment on highways. To do so, the incremental cost of construction and maintenance of highways with increased traffic as predicted by the model were compared with the incremental highway revenues from license and fuel tax generated by the increased traffic. The added revenue was generally not enough to pay for the additional construction and maintenance costs associated with the increased truck traffic. However, when the additional highway costs were added to the benefits of upgrading specific rail lines, the ratios changed only slightly. This indicates that the deficit from added truck traffic is only a small percentage of the total benefits of upgrading a rail line. Furthermore, they found the added truck traffic necessary to replace rail shipments was not enough to have a detrimental effect on highway safety.

Anderson, Gaibler, and Berglund 1976) et al., applied Baumel's model basically as described above to a 6 county region in south central Nebraska. As in the application of the model to Iowa, the objective was to maximize net revenue. However, a benefit-cost approach was not used. Net revenue was defined as gross receipts from the sale of grain minus the costs of transportation from farm to elevator to final destination, minus the cost of handling at various points in the channel, and minus the annualized costs of upgrading and maintaining rail lines in the system.

The optimal system would require 7 sub-terminals in the region collecting grain from farmers and country elevators by truck and shipping to final destination by rail, usually in 50-car unit trains. A total of 668,000 dollars more in annual net revenue was realized under this option than the existing system would generate. Additionally, no existing elevators would be forced out of business by rail abandonment under this option. However, the authors note that in the long-run elevators without rail service may be disadvantaged relative to sub-terminals and country elevators located on main lines.

An analysis of abandonment impact on highways revealed an opposite conclusion from that drawn by Baumel, et al. (1976), using basically the same approach. Although abandonment would lead to increased truck shipments, fuel taxes and licensing fees would far exceed the added cost of highway construction and maintenance.

Berglund and Anderson (1977) reported on an extension of their research in Nebraska which incorporated inbound fertilizer movements into the model along with outbound grain shipments. As in their original study, the objective was to maximize net revenue; however, the cost of handling and transporting fertilizer shipments were now deducted. Additionally, the annualized fixed costs of new fertilizer facilities required under various system configurations were included. Abandonment of about one-fourth of the region's rail line that was in the worst condition, proved to be the most desirable solution. As in the original study, 7 sub-terminals received grain by truck and shipped to final destination in 50-car units. Fertilizer was shipped in 3-10 car lots to an existing warehouse near the study area. From there, it was reshipped by truck to blending plants and dealers. The most costly plan was that of upgrading the existing system.

The authors concluded that fertilizer dealers on abandoned lines will probably not be disadvantaged relative to dealers on existing lines because most existing blending plants in the region were too small to receive multiple-car shipments. Further, they caution that the optimal system may not evolve since neither rail rates nor service characteristics are determined directly through competition.

Boske and Wolfgram (1977) reported on the framework incorporated into Wisconsin's State Rail Plan for analyzing the impact of rail abandonment. Instead of using a traditional benefit-cost methodology, Wisconsin rail planners developed a statistical format which incorporated uncertainty into the analysis. It also converted all measures of impact into indices which permitted analysis of combined effects of variables that are generally reported in unrelated units. For instance, wages lost are reported in dollars, pollutants are reported in terms of emission rates, and energy consumption is reported in BTU's. The indices also permitted a rank ordering of rail lines according to their relative importance to society. Each measure of impact was weighted by its perceived social importance based on the results of a survey of the general public. The methodology includes various measures of economic impact on the local economy and measures of impact on energy, the environment, highways, land use, and public utilities.

Specific values of social, environmental, and economic impact must be estimated, usually based on surveys of rail users and community officials. Through use of the probability distributions for each measure of impact, confidence intervals can be constructed. The confidence intervals are useful in determining a social benefit ranking of rail lines being considered for financial assistance.

This approach does not ensure that the benefits of any specific rail line project will be enough to justify the cost, but the authors suggest that the approach is superior to alternative techniques for several reasons. One reason, they note, is that more relevant information can be brought to bear on the evaluation of an abandonment. Another reason is that the approach relies on public opinion in determining the relative importance of various impacts. Last, it includes a method of dealing with uncertainty surrounding abandonment decisions.

Tyrchrniewicz, et al. (1978) reported on the results of a study to assess the impact of branch line abandonment and statutory rail grain rates on the economy of Manitoba, Canada. The authors used the Stollsteimer-type simulation model which had been developed earlier by Tyrchniewicz and Tosterud (1975) along with several other models to provide a very detailed analysis of several alternative conditions. Two alternatives in particular were abandonment of uneconomic branch lines and increasing rail grain rates to make the lines profitable; two alternatives open to government to restore earning power to the railroads.

The simulated abandonment of uneconomic branch lines which had been recommended for abandonment by a commission of the Canadian government suggested that major changes in the costs and delivery patterns of grain would occur. It was estimated that the cost to farmers of moving grain to elevators would increase by 248,511 dollars or approximately 2 cents per bushel, on average. However, capacity reductions due to closure of the elevators on the lines would decrease operating costs in the elevator industry by over one million dollars annually. The impact of abandonment on highways was not expected to be significant since the increase in truck traffic was small relative to the existing level on roads in the region.

Eliminating railroad branch line deficits by raising the rates to ship grain would require a 258 percent increase in costs to farmers. This would mean an additional cost of over 17.6 million dollars per year, or 13 cents per bushel. A simulation of the combined effects of line abandonment and rate increases resulted in an increased cost to farmers of 19.7 million dollars, or 13.2 cents per bushel.

Schuler (1979) used factor analysis to analyze 26 variables in order to develop an aggregate index of rail abandonment impact. The variables used in the study were those suggested by the ICC (RSPO 1975). Five factors emerged from the analysis which were labeled (1) industrial inertia, (2) direct employment loss, (3) local and state economy, (4) social-environment, and (5) cost of movement. The index was formed by the sum of all factor scores. The factor scores provide a set of measures that represent the positive or negative impacts of an abandonment.

The author applied the model to 21 branch lines totaling 500 miles in Indiana. These 21 rail lines had been evaluated previously by state rail planners in Indiana. A comparison of rankings of the lines revealed substantial differences. The author concluded that the differences were due to the omission by state planners of important variables which help explain the economic and social impact of abandonment. The technique does not consider whether the benefits of keeping a line in service would exceed the cost to the public. However, the author suggested that the technique was superior to arbitrarily or subjectively selecting variables to measure the impacts of rail abandonment.

Fleming and Yansouni (1980) evaluated the potential impact of rail abandonments in Canada. They compared the cost associated with abandonment and closure of all elevators on a line (as required under Canadian grain licensing laws) with two alternatives. One of the alternatives was the retention of an off-track elevator to be used as a collection point from which large truck shipments to a nearby rail-based elevator would be made. The other alternative was to retain rail service exclusively to the site of what would otherwise be the off-track elevator. Under the complete closure situation, grain producers would bear the burden of increased shipping costs to an on-line elevator. However, government would eliminate the cost of railroad operating subsidy as well as the cost of rehabilitating the line. If rail service was retained to one site, producers would still incur increased delivery costs but less than if no elevator was retained. Additionally, government would incur the cost of rehabilitation of the rail line and possible rail subsidy expenditures. Under the off-track option, producers would also experience a minor increase in delivery costs, but government would not incur the cost of subsidy or rehabilitation. Instead, government expenditures would be required to cover the commercial trucking costs and secondary elevation at the off-track site.

The authors concluded that the greatest savings resulted from abandonment and complete closure of all elevators on the line. The least attractive alternative was the off-track elevator. The savings in rail subsidy and rehabilitation costs were not enough to offset the added cost of commercial trucking and secondary elevation.

Nellas (1982) developed a network planning model to analyze the alternative effects of abandonment and rehabilitation on shippers and communities in Iowa. The model used was different from those of previous studies in that it incorporated consumer's surplus into the calculation of public benefits of preventing line abandonment. Consumer's surplus is the maximum sum of money a consumer would be willing to pay for a specific good or service, less the amount actually paid (Mishan 1976). Furthermore, prior studies had typically evaluated rail lines in a predetermined order without considering that the benefits of retaining each rail line are dependent upon the existence or nonexistence of other lines in the system. Consequently, this study attempted to determine the optimal rail system by examining all possible network configurations. For instance, if one rail line is to be eliminated, which line should it be? If two lines are to be eliminated which two? And so on until all potential combinations have been examined. The results of the network model were compared to those of the Baumel, et al. (1976). Similar results were found in areas where there were a small number of lines to be examined and where rail lines were independent of one another. However, in areas where a large number of interdependent lines exist, the two approaches produced different results, illustrating, according to the author, "the importance of theoretically sound benefit measures in situations for which optimal solutions are not obvious Nellas 1982).”

Bangsund, et al (1996) examined the potential economic impact of abandoning the Carrington to Turtle Lake rail line in North Dakota. They estimated that the combined effects of increased shipping costs, damages to the road system, effects on local employment, reductions in local tax revenues, reduced economic development opportunities, and some secondary impacts would total $1 million annually. The direct increase in transportation costs to shippers on the line was estimated to be 329,000 dollars annually, and the annual secondary impacts were estimated to be 682,000 dollars.

Babcock et al. (2003b) used simulation to assess the potential impact of transportation and handling costs on shipments of wheat resulting from the abandonment of short line railroads in Kansas. The simulation was based on Arc View Geographic Information System (GIS) software and a truck routing algorithm Babcock and Bunch (2002). They simulated the costs of wheat movements through the system first with, and then without the short line rail system in place. The difference in the two scenarios led them to conclude that abandonment of short line railroads would increase the costs of transportation and handling by 20.7 million dollars.

In a second publication from the same study, Babcock et al. (2003b) assessed the impact or rail abandonment on damage to highways in Kansas. In this portion of the study, they included a Highway Pavement model developed for the Washington State Department of Transportation (Tolliver 2000). The results of the simulated the Kansas wheat system with and without short line railroads suggested that damage costs would be approximately 57.8 million dollars annually. The additional state fuel tax revenue was only estimated to be 0.5 percent of the annual cost of additional damage.

The Wisconsin State Department of Transportation’s concern over the potential abandonment of rail service from Saukville to Kiel led to the State’s purchase of the line studied the potential effects of abandoning rail service between Saukville and Kiel (Leong et al. 2004).

Review of Retrospective Studies

Theodore and Doody (1976) analyzed the impact of abandonment of the Rutland Railroad on the New England economy. There was no measurable effect on non-railroad employment; however, 365 railroad employees lost their jobs because of the abandonment. A year later, 62 were still unemployed.

Most shippers had access to other railroad transportation or had been relying on trucks prior to the abandonment. Consequently, shipper impact was judged to be minimal. The worst impact was on shippers of low value, bulky commodities such as lumber, coal and feed. Most of these companies were able to pass along the increased costs to their customers, except when they were in competition with companies that still had rail service. A few coal and feed dealers were forced out of business, but most survived. There was very little impact on manufacturing. For all but one of the manufacturers, the additional costs were insignificant and simply absorbed. Fuel oil dealers found that trucks offered a superior level of service, and as a result, these companies experienced a reduction in total operating costs following the abandonment.

Zasada (1968) examined the effects of two rail abandonments on grain elevators in the wheat producing regions of Saskatchewan and Manitoba. To be licensed in Canada, a grain elevator must be located on a rail line. Therefore, all elevators on the two lines closed following the abandonment. However, elevators on nearby lines underwent capacity expansions almost equivalent to the reduction in capacity on the abandoned lines. One of the nearby lines was being considered for abandonment, and the elevating capacity expansion on this line was of a temporary nature, in the form of annexes. Expansion on the nearby line which was not being considered for abandonment was in the form of elevators.

Abandonment did not appear to lead to a reduction in the elevator capacity of the region. However, it led to a more highly concentrated grain handling system. The author concluded that this may not be in the best interest of the industry. The ratio of volume of grain handled to capacity (capacity turnover) is not improved as long as capacity reductions resulting from abandonment is replaced elsewhere in the system. He suggested that careful planning of capacity is needed.

The firm of Simat, Helliesen, and Eichner (1973) prepared a report for the U.S. Department of Transportation (USDOT) on the impact of rail abandonment on shippers and communities along 10 branch lines which had been abandoned in the northeastern U.S. during the mid-1960s. The study compared the allegations and predictions made during protests at public hearings with actual consequences of the abandonments. Most businesses continued to prosper in spite of the loss of rail service. Several firms were forced out of business following the abandonment, but most of these companies were marginal in nature and would probably have eventually failed even had rail service been retained.

Transportation costs increased for most of the former rail users. The types of businesses most adversely affected by abandonment were feed, fertilizer, coal, and lumber dealers. Large firms were generally better able to adjust than were smaller firms. Additionally, many communities could not attract new industry because of the lack of rail service.

Bunker and Hill (1975) studied two abandoned rail lines in Iowa and compared firms that had lost rail service due to abandonment with nearby firms that were still served by a railroad. The first line (Case I) was abandoned in 1971 and ran approximately 95 miles from Oskaloosa, Iowa to Kiethsburg, Illinois. The second line (Case II) was abandoned in 1969. It was 14 miles long and located in central Iowa. The shippers located along the line in Case I had access to water transportation on the Mississippi River while those shippers on the line in Case II were geographically restricted from using water transportation as a substitute for rail service.

The results of the study indicated that the proximity to water transportation was an important element in adjusting to the loss of rail service. The grain elevators studied in Case I experienced virtually no adverse impact due to abandonment; however, elevators in Case II were somewhat adversely affected. The control group of elevators in the study which retained rail service increased grain shipments by over 147 percent from 1968 to 1973, but the Case II elevators were able to expand their grain shipments by only 45 percent during the same period. Fertilizer distributors in both cases experienced increased transportation costs, and in case II the effect was markedly worse; one of the firms was forced out of business due to abandonment. In both cases, however, the remaining fertilizer dealers continued to expand sales in spite of the higher transportation costs.

Due (1975) studied the effects of rail abandonment in Sherman County, Oregon. The line had been used primarily for the movement of export wheat traffic. After the abandonment, most grain shipments were made by truck to either of two major terminals located near the Columbia River. However, only one of the terminals had access to water transportation. This provided shippers with two basic alternatives for grain shipments destined for Portland. One alternative was to use truck-barge combination and the other was to use truck-rail combination. The truck-barge combination offered shippers a slightly lower transportation cost than had been incurred by making direct rail shipments before abandonment. The cost of the truck-rail alternative was slightly higher than before abandonment.

Other effects of the abandonment were also minimal. The area lost approximately 9,000 dollars per year in property taxes previously paid by the railroad, but this was a very small percentage of total taxes of the county. There was also an additional investment in county roads required. Many of the communities studied had been declining in population, but the loss of the rail line seemed to speed up the process somewhat.

Allen (1975) reported on the impact of rail abandonment on 10 communities in states from New York to Texas. The analysis focused on increases in transportation costs, short-run adjustments to abandonment, and the overall long-run effects. Most of the communities studied had unbalanced traffic patterns with inbound shipments dominating the flow. The worst impact was on receivers of feed, fertilizer, and coal. In almost all of the communities, coal dealers were forced out of business due to increased transportation costs. For other businesses, the major cost was a one-time expense resulting from establishing new procedures for shipping and receiving goods. Most firms using rail service at the time of abandonment were either able to switch to truck transportation at no extra expense or were able to pass along any increase in transportation costs incurred. Even though many employees of coal dealers lost their jobs in almost all of the communities, only 2 of the 10 communities actually experienced a negative impact on aggregate employment. In many instances, the abandonment led to the creation of new jobs such as truck drivers and extra labor for double handling of goods that had to be transshipped. Little evidence was found to support a belief that two of the counties rail abandonment produced any long lasting adverse effects.

Sloss et al. (1975) evaluated the impact of rail abandonment by comparing nine counties that had lost rail service with nine counties that had lost no rail lines. Two of the counties studied were in Oklahoma, and the remaining were in Arkansas, Georgia, Michigan, Minnesota, Missouri, North Carolina, and Texas. Each of the control counties was in the same state as the county without rail service with which it had been paired.

The authors compared the two sets of counties on the basis of the percentage changes in measures of economic development from before the abandonment until after it. The measures used were: changes in bank deposits; value added to farm products; value added in manufacturing; employees in manufacturing; net capital expenditures; retail sales; and wholesale sales. The percentage changes in measures of economic development in the counties that had lost rail service were not significantly different from those in the control counties. Hence, they concluded that the economic development of a county would not be affected by the loss of rail service.

Miller, et al. (1977) reported on the results of a study to evaluate the impact of rail abandonment on communities and grain shippers in Iowa. The authors compared performance measures of cooperative elevators and incorporated towns that had lost rail service before 1974 with performance measures of cooperatives and towns still served by a railroad. The performance measures of cooperatives included total sales, grain sales (in both dollars and bushels), fertilizer sales, total assets, and return on investment. Community performance measures included population, retail sales, bank demand deposits, bank loans and discounts, and bank surpluses and undivided profits.

The results indicated that there were no significant differences in communities that have lost rail service and communities that still have rail service. Nor were there any significant differences in cooperatives that have lost rail service and cooperatives that still have rail service. Cooperatives located on abandoned rail lines actually experienced slightly higher rates of return on investment than did elevators with rail service. The authors reported that managers of the cooperatives that lost rail service completely reevaluated their elevators' operations. The loss of rail service appears to have stimulated better management practices and improved efficiency which, in turn, led to higher profitability. The authors noted:

...contrary to popular opinion, cooperatives located on abandoned rail lines do not die but rather continue to grow...The results...tend to confirm the conclusions of case studies that suggest minor or negligible impacts of rail abandonment on rural towns and elevators (Miller, et al. 1977).

Spraggins (1978) studied grain elevators in Minnesota that had lost rail service between 1966 and 1975 in order to evaluate the Interstate Commerce Commission's policy on rail abandonment. He compared grain elevators that had lost rail service with nearby elevators that were still receiving rail service. In the majority of cases, elevators that had lost rail service were faced with truck rates that were actually lower than the rail rates faced by nearby elevators. Elevators that had lost rail service were able to expand in terms of grain sales and capacity just as well as rail-based elevators. Elevators located on existing rail lines had slightly higher capacity turnover ratios than elevators on abandoned lines, but the relative changes in turnover from 1969 to 1975 were not substantially different.

The author suggested that abandonment could permit the development of large sub-terminal elevators and take advantage of low cost unit train rates to major export grain markets such as ports along the Gulf of Mexico. The low cost transportation would permit the sub-terminal to offer prices to farmers and country elevators which could offset the cost of trucking grain to the sub-terminal. The net effect, he concluded, "...could be to actually increase returns to the elevator losing rail service as well as to the affected farmers (Spraggins 1978)."

The firm of Ernst and Whinney (1981) prepared a report for the Federal Railroad Administration on shipper responses to the loss of rail service. The report was based on a telephone survey of 135 companies that lost rail service between 1976 and 1980. Some shippers had been on lines that were closed when Conrail was formed in 1976, and the remaining were on Rock Island and Milwaukee Road lines which had been abandoned during 1979 and 1980. Of the 135 cases examined, only 2 firms were forced out of business as a direct result of the loss of rail service. Three firms were forced to relocate. Most firms surveyed (83 percent) experienced an increase in transportation costs, but only 20 respondents (15 percent) indicated that they had experienced a drop in sales as a result of the increase in transportation expenses. Unfortunately, no comparisons were made with companies that still receive rail service, so there is no way of knowing whether the increased transportation costs were simply the result of inflation or if they were actually caused by the abandonment.

Firms most likely to be hurt by rail abandonment were found to be those that simultaneously meet three conditions. First, transportation cost must be a significant portion of the total delivered cost of the firm's major products. Second, there must be little opportunity to differentiate their products from those of competitors. Last, competitors must have rail service.

Maloney (1982) reviewed the effects of two rail abandonments on rural communities in Alberta, Canada. The populations of some of the communities studied had been declining even before abandonment and some have increased since abandonment. The critical task, the author concluded, is to identify communities that are stable economic centers before abandonment but which would decline if rail service were terminated. Characteristics of such communities include: a population between 200 and 1,000; a tax assessment that is more than 30 percent dependent on rail properties; a business environment; a municipal and social infrastructure that serves a rural hinterland; a geographical location close enough to alternative grain elevators so that farmers will not have to haul grain more than 10 additional miles; and good road access.

Communities that fail to meet the minimum level of these criteria would probably decline even if rail service was retained, and those communities that surpass the criteria would probably survive in spite of abandonment. According to the author, the former type of community is not worth attempting to save, and the latter type does not need assistance. However, communities that fit the profile outlined above will probably need public assistance to survive, and failure to provide it may lead to significantly adverse impacts. The author suggested that careful planning could prevent problems which may result due to abandonment.

Gittings and Thomchick (1987) did a longitudinal study of shippers located along six rail lines in Pennsylvania. Shippers were contacted by telephone twice, first during 1983 and again in 1986. The lines on which the shippers were located were not yet abandoned, but were likely candidates, based traffic volume and density. The 1983 survey revealed that the majority of respondents had switched from rail to truck during the early1980s because of lower truck rates and improved service levels following deregulation of the motor carrier industry. Some cited the desirability of shipping smaller lot sizes by motor carriers, especially given the relatively high interest rates and subsequently higher cost of holding inventory. The researchers pointed out that small shippers would pay substantially more for truck service than rail as long as the shipment size permitted them to hold smaller inventory levels, and that the truck-rail rate differential, or competitiveness of rail rates became more important only for large shippers who necessarily shipped larger volumes. A single shipper on a line accounted for as much as 35 percent of the volume of rail traffic in two instances.

By the end of 1986, six of the shippers who had been surveyed in 1983 were out of business. However, only one shipper had reported that the potential loss of rail service would hurt its business, and the rail line on which that shipper was located was still active, so it was determined that the regional economy was the problem, not the loss of rail service. The remaining respondents were all using motor carrier services as their major transportation mode, and over half of them were using trucks exclusively. The dependence on motor carriers was attributed to the desire to reduce inventory in their own facilities as well as those of their customers. Overall, the effect of changes in rail service on shippers surveyed in 1983 was, “only a low to moderate impact from even the worst-service scenario, namely abandonment of rail service (Gittings and Thomchick 1987, p. 24).” The authors concluded that it was important to consider total logistics costs and the range of logistics alternatives available when evaluating the impact of the loss of rail service on shippers.

Crane and Leatham (1993) performed an economic analysis to examine the relationship between transportation expenditures and economic growth for rural areas in Texas. They found that switching from rail to truck could create jobs in construction, maintenance and other areas, as well as improve access to and from rural areas and had a positive economic impact on both farm and non-farm incomes, and on employment growth.

Sanderson and Babcock (2005) studied the effects of rail abandonment at the county level in Kansas using an econometric approach that had not been used in prior studies. They examined county level data from the U.S. Department of Commerce and the Kansas Department of Transportation. They assessed the effects of abandonment on a wide range of variables including the prices of goods and services, factor payment levels, production decisions, income and related measures, and wealth. They suggested that the effects of abandonment may not be immediate, and therefore lagged variables up to four years to estimate the effects of abandonment on areas in later time periods.

Their results indicated that only a few the coefficients for abandonment-related variables were statistically significant, and in most cases, they were not what were expected. They “any adverse impacts appear to be minimal (Sanderson and Babcock 2005, p. 108).” They found that population growth had the strongest effects on economic measures at the county level, and this was followed by regional product growth. The effects of abandonment were initially followed by net growth, but some of it is possibly temporary. They suggested that adverse effects may not appear for a number of years beyond what they measured with their lagged variables.

Conclusions Regarding Abandonment Impact Literature

In many respects, the studies reviewed offer conflicting conclusions regarding the impact of rail abandonment on shippers and communities. However, a few generalizations can be made. First, prospective studies relying on input from managers and community officials who face the loss of rail service appear to predict much worse effects than do studies that rely on available cost data to model the impacts of rail abandonment. Second, the effects of actual abandonments appear to be less severe than those predicted by most of the prospective studies employing mathematical models, and, according to retrospective studies, the actual level of adverse economic impact due to rail abandonment has not been serious. Finally, most rail lines approved for abandonment have had major declines in traffic prior to the carrier filing with the ICC/STB, and they have little or no traffic at the time of abandonment. This decline in traffic is a function of shippers, especially small shippers, switching to motor carriers to take advantage of savings associated with smaller shipment sizes, less damage, and faster, more dependable delivery times.

The discrepancies in findings of prospective and retrospective studies may be due to the fact that only a limited set of anticipated responses to abandonment can be analyzed, but shippers have many alternative ways in which to cope with the loss of rail service. Each mode of transportation has its unique advantages. In the past, most shippers that have lost rail service have apparently been able to take advantage of specific benefits offered by alternative modes or combinations of modes and have successfully adjusted to their new environments. Another explanation of these discrepancies may be found in the cost of holding inventory. Very few of the studies reviewed refer to inventory costs at all, and the prospective studies that have attempted to consider the effects of inventory have incorporated them into their measures of unit handling costs (i.e., Baumel, et al. 1976). This necessarily assumes that inventory costs increase with the volume of goods handled, but it is widely acknowledged that inventory costs are an increasing function of the average level of inventory on hand (e.g., inventory turnover), not of the overall annual volume, per se (Lambert and Stock 2003; Coyle, Bardi, and Langley 2006; Ballou 2002).

Many studies have stressed that increased transportation costs are an adverse effect of rail abandonment. However, the smaller shipment sizes associated with truck transportation, vis-a-vis rail transportation, will permit lower average inventory levels. Truck transportation also offers lower costs of inventory in transit and lower costs associated with safety stock due to faster and more predictable delivery times, respectively. In many cases, the reduction in inventory costs is apparently sufficient to offset the higher cost of premium forms of transportation. This helps explain why so many shippers switch to truck service, adding to declining rail traffic levels. Furthermore, some shippers are undoubtedly able to enjoy a reduction in inventory carrying costs after losing rail service, even when they are forced to change modes (Gittings and Thomchick 1987).

Railroads are for-profit corporations, and they base abandonment decisions on their ability to profitably perform their services. In most instances, railroads attempt to abandon rail lines only after shippers have abandoned them. Thus, one might conclude that when adverse impact occurs due to abandonment, it might well be that the shippers affected have not made good decisions regarding their choice of transport mode. In fact, there is evidence to suggest that very few shippers are aware of how to measure the trades offs between carrier rates and inventory carrying costs associated with shipments size, transit times, and transit time variability (Ozment 2001b). While shippers may be aware of “trade-offs” in general, the actual measurement of relevant costs is not something that is intuitive, and can require collection and computation of complex data. The Federal Railroad Administration (2005) provides a comprehensive model for analyzing supplier choice, shipment size, and mode but it is apparently not widely distributed, and managers in general are not well educated with respect to decisions involving transportation and logistics.

Consequently, attempting to assess the effects of abandonment impact on individual shippers can provide misleading results. This is in line with federal policy requiring the STB to find “serious, adverse impact on rural and community development” before rejecting an abandonment application (Office of Public Services 1997, p. 10). If the overall economic well being of areas that have lost rail service are not worse off than areas that have not lost rail service, then one would conclude that in the aggregate, shippers have adequately adjusted to the new environment.

METHODOLOGY

Hypotheses

In many instances, rail lines are abandoned because of declining traffic levels resulting from more creative shippers selecting other forms of transportation, especially trucks. Protests are made typically on behalf of firms that are thought to have no alternative means of transport, but remaining traffic volumes may not be sufficient to permit profitable operations of the line. Protective government policies may be simply enabling less creative shippers to continue inefficient and archaic business practices. Shippers who lose rail service because they are “the last to leave” should be able to find new and more efficient methods of transportation. If firms cannot survive without rail service, and the impact of the abandonment is truly serious, the entire local economy should be affected, not just a single company, and those effects should be apparent over a long period of time.

Thus, if the overall changes in economic conditions of areas that have lost rail service do not decline or are not worse than the changes in areas that have not lost rail service, then one would conclude that, in the aggregate, shippers have adequately adjusted to the new environment. If, however, the effects of rail abandonment have been negative, this impact should be manifest in the economic conditions of the area and the rates of change in those conditions over time. Thus, for the purposes of this analysis, the following two general hypotheses regarding the effects of rail abandonment are tested:

H1: The economies of areas that have not lost rail service will be better than those of areas that do not have rail service or that have lost it.

H2: Over time, the change in economic conditions in areas that have not lost rail service will be better than the change in conditions in areas that do not have rail service or that have lost it.

Data and Variables

To test these hypotheses, data from the County and City Data Book and from the U.S. Census Bureau’s Website for USA Counties were examined. The variables that were analyzed reflected the economic conditions in those counties in 1980, 1990, and 2000. In some instances, data were not available for those years and other years were used (i.e., 1979, 1989, and 1999 or 1982, 1992, and 2002). Specific years used are identified in the results. The percentage changes shown over the first 10-year period (i.e., between 1980-1990), or the second 10-year period (1990-2000), or the full 20-year period (1980-2000) are divided by 10, 10, or 20, respectively, to provide to annual rates of change.

The variables analyzed in the study shown in Table 3 and reflect a variety of economic conditions relating to population and employment, income, banking, manufacturing, wholesaling, and retailing. Some of the data were not available for all counties, so the number of observation is shown together with the means and p-values, which indicates whether the differences in means of the two groups is statistically significant. P-values of less than 0.05 indicate at least a 95 percent probability that the difference shown is meaningful (Kutner et al. 2005).

The sample studied included 75 counties in Arkansas, which were divided into those that did not have rail service as of 1980 or had experienced abandonment prior to 1996 and counties that had not lost any rail service during that time. Figures 2 and 3 are maps of Arkansas showing the rail network system as of 1975 and 2002. Many counties have experienced abandonments, and clearly, some of those still have rail service in other areas, but for convenience of discussion, those counties that experienced abandonment during the study period will be referred to as “counties with abandonments” and those that did not lose any rail service during the study period will be referred to as “counties without abandonments.” The counties in each category, and their populations as of 2000, are shown Table 4.

The counties marked with an asterisk are the largest in Arkansas. As can be seen, each of these four counties had populations in 2000 of over 115,000; two had populations of over 150,000 and one had a population of over 300,000. Three of these four counties had rail service and had not lost any rail lines since prior to 1980 (if ever). Since no other county had a population of more than 90,000, their presence could introduce a bias into the analysis, so they were omitted from the analysis. However, Appendix A includes an analysis in which these counties are included.

The goal of this analysis was to assess the long-term effects of rail abandonment, and, as noted by Sanderson and Babcock (2005), the effects of abandonment may not be felt for some time, so counties that did not experience their first abandonment until after 1995 were included in the analysis as part of the sample that had not lost rail service. Table 5 shows the abandonments that took place in Arkansas after 1995, according to the Surface Transportation Board dockets (STB 2007). There were 13 counties affected by those abandonments, but some had experienced abandonment prior to 1996.

Figure 2

Arkansas Rail Network: 1975

Figure 3

Arkansas Rail Network: 2002

Counties for which abandonments were not previously recorded are marked with an asterisk in Table 5. Of the 13 counties in the Table, there were 5 (Arkansas, Ashley, Hemstead, Lawrence, and Pulaksi) that had already recorded abandonments, so including them with the counties having had abandonments was not an issue. The 8 remaining counties were affected by abandonment for the first time after 1995, but they were included in the group of counties that had not lost rail service. While technically five of these counties (Clark, Drew, Nevada, Ouachita, and White) had lost some rail service by 2000, the goal was to examine the long term effects of abandonment, so these all 8 of the counties were treated as if they had not been affected by abandonment. This follows the suggestion of Sanderson and Babcock (2005) that the effects of abandonment would not be apparent for several years.

However, the analysis provided in Appendix A includes five of those counties (Clark, Drew, Nevada, Ouachita, and White) as part of the sample that had “lost rail service.” Columbia, Chicot, and Lafayette were not included as having lost rail service since the majority of the data used was not current enough to have affected them. Chicot County did not experience abandonment until 2007, and Columbia and Lafayette lost service in 2001, just one year prior to the most recent data reported for Manufacturing, Wholesaling, and Retailing.

Table 3

Variables Used in the Analysis