Passenger Rail Update

Introduction

In this Passenger Rail Update we mark Congress’s passage of the Infrastructure Investment and Jobs Act in November last year, which provides a range of passenger rail funding opportunities. We also note Amtrak’s announced support for the proposed merger between the Canadian Pacific (“CP”) and the Kansas City Southern (“KCS”) Class I railroads, which is currently pending before the Surface Transportation Board (“STB”). Finally, we review a recent Illinois federal district court case discussing whether a freight railroad’s common carrier obligation includes the obligation to provide passenger rail service (spoiler alert—the court held that it does not).

(The authors note at the outset that they represent the Commuter Rail Division of the Regional Transportation Authority, d/b/a Metra, as a party in the CP-KCS merger proceedings before the STB in FD No. 36500, and as Metra’s outside rail counsel in the Illinois district court case discussed below.)

Enactment of the Infrastructure Investment and Jobs Act

On November 15, 2021, after a prolonged period of intense negotiations, Congress passed, and the President signed, the Infrastructure Investment and Jobs Act (“IIJA”), an infrastructure spending-focused bill constituting the largest federal investment in public transit in U.S. history. The law specifically marks $39 billion of new investment to modernize transit, in addition to maintaining existing transit programs for the next five years. Some of the highlights for the passenger rail industry include:

  • Investment of a total of $66 billion in additional funding to address Amtrak’s maintenance backlog, make improvements to the Northeast Corridor, and expand service in other parts of the country.
  • Increase in Urbanized Area Formula Grants to more than $33.5 billion; funding of Capital Investment Grants up to $23 billion.
  • Introduction of a new competitive grant program under the State of Good Repair Grants program providing $300 million annually for rail vehicle replacement.
  • Introduction of new competitive national infrastructure project assistance program, including for regionally or nationally significant intercity passenger rail and public transportation projects of at least $100 million (with 50% of funds allocated towards project of more than $500 million).
  • Introduction of the Promoting Resilient Operations for Transformative, Efficient, and Cost-Saving Transportation (“PROTECT”) Program, which provides both formula and competitive grants to fund planning for and construction of transportation infrastructure that improves resilience against the impacts of natural disasters.
  • Amendment of the Transportation Infrastructure Financing and Investment Act (“TIFIA”) program to expressly cover construction and improvement of transit-oriented development projects.
  • Amendment of 49 U.S.C. 22908(e) (restoration and enhancement grants) to extend the duration of funding for intercity rail passenger transportation routes from 3 to 6 years.

Expect to see new regulatory activity from the Department of Transportation’s Federal Transit Administration and the Build America Bureau announcing new funding and implementing changes brought by IIJA.

Amtrak Announces Support for CP-KCS Merger

As previously covered in ATLP’s Association Highlights Blog, the STB is currently considering a merger application submitted by CP and KCS, two of the seven Class I railroads serving North America, in Finance Docket No. 36500. On January 6, 2021, Amtrak announced its support of the CP-KCS merger. As part of its announcement, Amtrak also identified commitments from CP, which hosts Amtrak over portions of its network, to increasing frequency on Amtrak’s Hiawatha Service between Chicago and Milwaukee, extending Hiawatha Service from Milwaukee to St. Paul, Minn., and implementing new passenger service through the Detroit River Tunnel between Michigan and Ontario to Winsor and Toronto, Canada. The agreement between CP and Amtrak also commits CP to support the establishment of Amtrak service between New Orleans and Baton Rouge, La., and for the study of potential Amtrak service between Meridian Miss., and Dallas, Texas. The STB is accepting comments from the public on transportation components the proposed transaction until February 28, 2021, while environmental review proceeds simultaneously.

Illinois District Court Issues Decision Denying that Freight Railroad Has a Common Carrier Obligation to Continue Providing Chicago-Area Commuter Rail Service

On September 23, 2021, the U.S. District Court for the Northern District of Illinois, Eastern Division, held that the Union Pacific Railroad Company (“UP”) does not have a common carrier obligation to provide passenger commuter service on three of its lines over which it operates such service under contract for the Regional Transportation Authority’s Commuter Rail Division (“Metra”) in Chicago, Illinois.

The unusual circumstances of the legal question central in this case arose from the virtually unique circumstances under which UP conducts commuter rail service for Metra. The circumstances, in turn, require delving into some of the history of commuter rail service. For much of the early and middle part of the twentieth century in the U.S., private railroads provided public rail transportation to both interstate passengers and commuters, in addition to freight traffic. Over time, the railroads’ common carrier obligation to provide both passenger and freight service became subject to federal regulation by the Interstate Commerce Commission (“ICC”) and a federal regulatory regime that grew and developed along with the U.S. rail industry.

Changing transportation patterns, economic environment, and legal environment beginning in the middle of the twentieth century resulted in private railroads gradually seeking to discontinue unprofitable passenger service throughout the country. At first, railroads encountered difficulties with regulators in eliminating passenger service from their common carrier obligation to provide service to the public. Changes to the federal laws regulating railroads between 1970 and 1983 facilitated this process as a means of preserving the freight rail system. In order to maintain service, many state and local governments sought to acquire or, in some cases, subsidize, commuter rail service, leading to the virtual complete takeover of commuter rail service by public entities by the 1990s.

Unlike the vast majority of commuter rail lines in service today, which were acquired by public entities over the course of the second half of the twentieth century as private railroads sought to relieve themselves of unprofitable operations, the three lines at issue here—the Union Pacific North, Union Pacific Northwest, and the Union Pacific West—were retained by the private railroad that owned them, the Chicago & North Western (“CNW”). Instead of terminating the service, starting in 1975, CNW entered into a series of purchase-of-service agreement with Metra to continue providing commuter rail services under Metra branding. In 1995, UP bought CNW, and continued to provide passenger service for Metra pursuant to new agreements. 1995 also marked the culmination of the federal deregulation of the railroad industry, through the passage of the Interstate Commerce Commission Termination Act (“ICCTA”), which abolished the ICC and repealed the section of the statute that specifically addressed termination of passenger service.

Since 2019, UP and Metra have been unable to reach a new agreement to renew Metra’s subsidization of UP’s commuter rail service. The disagreement has been based in part on whether UP retains a common carrier obligation to provide commuter service over the lines in question. If it does, then UP might arguably be required to seek authorization from the ICC’s successor, the STB, or a state regulatory body in order to discontinue commuter service. The disagreement led UP to file a petition in late 2020 for a declaratory judgment from the Court that it did not retain such an obligation.

UP argued before the district court that any common carrier obligation it or its predecessor held with respect to commuter rail service over the lines was dissolved with the passage of the ICCTA. In particular, UP argued that the ICC’s discontinuance provisions for particular parts of rail service that were eliminated under the ICCTA (former 49 U.S.C. §§ 10908 and 10909) removed any requirement by railroads to seek federal discontinuance authority for commuter service. Furthermore, UP argued that the ICCTA also broadened the scope of federal preemption, thereby prohibiting state regulation of commuter rail discontinuances.

Metra’s position in the dispute before the district court was that UP’s common carrier obligation to provide commuter service remains in place because UP agreed to take on the responsibilities of CNW, which expressly acknowledged its continuing common carrier obligation. Furthermore, because neither UP nor its predecessor ever sought to abandon or discontinue the service in question, Metra argued that the UP’s common carrier obligation of the lines continues to include commuter rail service. Metra further argued that passage of the ICCTA, while eliminating the specific regulatory provision allowing for discontinuance of passenger service alone, did not eliminate UP’s obligation to provide commuter service altogether, and that the STB’s existing general authority over discontinuances, under 49 U.S.C. § 10903, meant that UP continued to require abandonment authority to terminate commuter service. In support of this position, Metra argued before the Court that, among other things, subsequent STB precedent clearly reflected the STB’s continuing authority to regulate passenger rail, notwithstanding passage of the ICCTA.

The district court’s decision held in favor of UP based on its interpretation of the change in statutory language precipitated by the ICCTA. In particular, the district court noted that under a provision eliminated by the ICCTA (former 49 U.S.C. §§ 10909 and 10908) a railroad was required to seek ICC permission to discontinue or change “any part of the transportation of a train”, whereas the provision for discontinuance and abandonment that the ICCTA kept in place requires STB permission where a railroad seeks to either “abandon any part of its railroad lines” or “discontinue the operation of all rail transportation over any part of its railroad lines,” see 49 U.S.C. § 10903(d). The district court found that UP was neither seeking to completely abandon the lines, nor “discontinue the operation of all rail transportation”, but rather only discontinue commuter rail transportation, and therefore its actions did not fall under the existing criteria for seeking STB discontinuance authorization. While the court noted that nothing in the current statutes explicitly state that UP can stop providing ongoing commuter service free from regulation, it found that such a position was consistent with elimination of Sections 10909 and 10908 and the statutory policy of reducing regulatory barriers to market entry and exit, as well as with applicable legislative history. For example, the district court noted House and Conference reports stating that the ICCTA eliminated the regulation of entry, exit, and fares of passenger rail service. The STB did not address its own recent precedent confirming its continuing jurisdiction over and regulation of rail passenger service

The district court also held that in the absence of STB regulation under the ICCTA, UP was not required to seek state regulatory approval to discontinue commuter rail service, pointing to the ICCTA’s broad preemption provision (at 49 U.S.C. § 10501(b)).

The district court’s decision has major implications for Chicago-area commuter rail service. Pre-Covid, the three UP lines over which commuter service operated served an average of over 100,000 weekday commuter trips, comprising over a third of all Metra commuter rail trips. Metra’s service constitutes the largest commuter rail service outside of the New York and New Jersey, meaning that the decision alone impacts a significant portion of the country’s rail-commuting public. UP has indicated its intent to transfer its commuter service operations to Metra, making clear that it desires to stop providing the service itself.

The broader impacts of the decision are less direct but still noteworthy. In view of the positive climate-related benefits of transit and passenger rail transportation, and with attention and funding for commuter and passenger rail increasing under the Biden Administration, interactions between commuter rail service and the freight transportation network may increase in the coming years, which could raise more questions about the extent of STB jurisdiction and authority to regulate these disputes. 

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