Issues & Insights

The Staggers Rail Act At 40: Still On The Right Track

Kabelleger/David Gubler http://www.bahnbilder.ch/picture/8636

Today marks the 40th anniversary of President Jimmy Carter’s signing of the bipartisan Staggers Rail Act into law. It is an anniversary to be recognized, given the short memory Washington can often have about why fundamental shifts in regulatory policy are undertaken in the first place. This landmark legislation quite literally saved the nation’s railroads from near total collapse. Replacing heavy-handed government micro-management with a lighter touch that allowed free markets to evolve was not an easy task, but the results have been well worth the struggle.

Prior to the Staggers Act, rail regulation was vested in the Interstate Commerce Commission, which had broad authority not only on safety and oversight regulations, but also on the economic operations of interstate carriers. The commission set prices for each commodity and each route served by the railroads, was assigned the task of consolidating railroad systems, and handled labor disputes that occurred within the scope of interstate transport.

By the 1970s, those regulations placed a stranglehold on the industry. According to the Brookings Institution, “Rail’s share of freight traffic, which stood at nearly 70% of intercity ton-miles following World War II, fell to 37% by 1975. Moreover, following the bankruptcies of several Northeastern and Midwestern railroads in the 1970s, nearly every remaining railroad was earning a rate of return below that earned in the corporate sector as a whole.” By 1978, the industry was in disarray – derailments surged, investment plummeted, and consumers lost confidence. 

In an attempt to save freight rail and ensure shippers were able to get their goods to market, lawmakers spent billions of dollars in loans and direct aid to keep it afloat. But by 1980, it became clear that the solution required less, not more, government involvement.

Enter comprehensive railway reform. Months of work by congressional Democrats, Republicans, and the Carter administration resulted in the Staggers Act, which eliminated many of the most harmful regulations and allowed railroads to take a consumer- and market-oriented approach to regulation. Staggers shifted most regulation of the rail industry by the ICC to a Surface Transportation Board, largely giving route determination and pricing power back to the marketplace while more fully allowing carriers to compete.

Opponents claimed such actions would be a boon for large railroads at the expense of consumers, but the reality has been far different. A recent study by the American Action Forum found that rail shipping costs in 2016 were “45% lower than in 1981, the first full year of operation under the partial deregulatory structure.” They also found productivity to have risen by 150% over the same period. 

The Staggers Act was one of several important reform efforts to the transportation sector in the late 1970s and early 1980s. Passenger and cargo airlines, trucking, and intercity bus lines all gained from smart legislation enacted within a few years of each other, as did the concept of a multimodal network for moving goods. But the ultimate beneficiaries were customers of this network, which fostered competition and innovation. In contrast, the federally chartered passenger rail debacle known as Amtrak has received more than $40 billion of taxpayer funding since its creation in 1971.

Alas, with potential political changes in the White House and Congress, there is concern that attempts will be made to tighten the federal grip on freight railroads as well.This could include costly train length restrictions, prioritization for passenger over freight rail on tracks, crew size minimums, and even bans on certain types of shipments such as liquified natural gas. 

Of course, no law ever functions perfectly. One purpose of the Staggers Act, “to allow, to the maximum extent possible, competition and the demand for services to establish reasonable rates for transportation by rail,” remains a source of disputes among stakeholders today. Resolving these disputes can become costly and cumbersome for all parties involved. In addition, regulators need a bigger picture of the existing taxes and regulations burdening both carriers and shippers, even if those officials are focused on just part of the rulemaking process.

Overall, however, deregulation of rate setting in the freight rail industry has been beneficial to everyone. Rates have dropped. Volumes have increased. The Staggers Act has demonstrated that when the government gets out of the way, the economy thrives, businesses prosper, taxpayers are protected, and consumer well-being improves. Here’s hoping it has a long life.

Thomas Aiello is policy and government affairs manager for the National Taxpayers Union.

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