Rail tax credit in US "national interest"-regulator

By Nick Carey

WASHINGTON, May 4 (Reuters) - A proposed tax credit designed to boost investments by U.S. railroads and shippers to expand rail capacity is in the country's national interest, a regulator said on Friday.

"Investments in rail capacity are not anywhere close to the pace needed to meet rail infrastructure requirements," Surface Transportation Board (STB) Chairman Charles Nottingham told Reuters at his office in Washington. "It is in this country's strategic national interest to encourage more investment in rail capacity."

One of the STB's primary tasks is to regulate freight rate disputes between railroads and their customers.

The proposed 25 percent investment tax credit has been introduced in both houses of Congress and would be available to shippers and railroads to lay more track, expand tunnels and make other investments to handle more trains at a time when the country's rail network has been strained by rising U.S. imports and soaring demand from utilities for coal.

U.S. freight traffic is set to continue rising in the years to come and railroads are seen as a viable option for easing congestion on the country's highways.

The major railroads, however, say they can only invest so much in order to meet their cost of capital and their fiduciary requirements as publicly traded companies.

"Ultimately, the railroads have to keep an eye on the bottom line," Nottingham said. "With this initiative we can maximize the flow of private capital into rail infrastructure."

Nottingham also warned Wall Street not to pressure railroads to reduce their current capital expenditure levels.

"It is important for analysts to understand that in the current economic climate the government would take a dim view of any reduction in spending on infrastructure," he said.

Lower infrastructure spending would result in more complaints and make Congress more inclined to interfere and thus scare off investors, Nottingham added.

A separate bill, the Rail Competition and Service Act, has also been introduced in Congress and some shippers say it would improve the way the STB works. But Nottingham said parts of the legislation, especially allowing the government to regulate access between rail networks, could be damaging.

"I don't believe that bill will help shippers and railroads meet their rail service and infrastructure needs," he said. "We've asked the private sector to take enormous risks over the years in investing in the railroads," and partial government management of those rail networks would "have a chilling effect on investment."

Nottingham was appointed STB chairman in August. He acknowledged that the regulator has often been accused of being slow and too closely connected to the railroads it oversees.

Over the next 100 days, the STB will produce a number of rulings and guidelines that he said would "show whether we are on the right track."