Railroad tax credit could help Idaho agriculture

By Sean Ellis

Idaho Farm Bureau Federation

BOISE – A bill has been introduced in the Idaho Legislature that would incentivize investment in the state’s nine shortline railroads, which provide a critical transportation lifeline for much of Idaho’s agricultural industry. 

House Bill 61 provides a 40 percent income tax credit to shoreline railroads on the value of investment and maintenance on their railroad infrastructure.

The tax credit would incentivize the railroads to improve their efficiency, reliability and safety, supporters of the legislation told members of the House Revenue and Taxation committee, who voted 13-2 Feb. 7 to send the bill to the House floor with a “do-pass” recommendation. 

Improvements in rail infrastructure would also speed up delivery times, which is important for farmers, ranchers and ag shippers who need to get their product to market as quickly as possible, said Veritas Advisors partner John Watts, who represents shortline railroads in Idaho.

Improvements in rail infrastructure “will help commodity growers, manufacturers and shippers,” he said. 

The tax credit would be available to Idaho’s nine Class II and III railroads, which are known as shortline railroads and connect to the mainline tracks of Idaho’s two Class 1 railroads, Union Pacific and Burlington Northern. 

UP and BN would not be eligible for the credit, which is capped at $3,500 per mile of track in Idaho. To be eligible for the credit, a railroad must invest at least $8,750 per track mile of its own money upfront.

The top three products hauled on shortline railroads in Idaho are corn, sugar produced by Idaho sugar beet growers, grain (wheat and barley), and timber and lumber, Watts said. 

Well over 60 percent of the products hauled on these tracks are agricultural commodities, he said. 

In some areas of the state, these shortline railroads are a critical way to get ag products to national and international markets, Watts said. 

If tracks are in a fair or bad state of repair, trains can’t go more than 10 mph on them, Watts said, which significantly slows down the time it takes to move products to market.

Better tracks also allow the railroads to transport heavier and fully loaded rail cars, which allows commodities to be moved at less cost to a grower or shipper, he said. 

“So those two reasons, increased speed and fuller volume, are two key reasons why we need to keep these tracks in good shape to allow shippers to move that product in the most cost-effective and efficient manner we can,” Watts said. 

The bill’s sponsor, Rep. Clark Kauffman, a Republican farmer from Filer, said improved rail infrastructure “will allow heavier, more fully loaded cars to move our products and commodities at less cost to the shipper.”

He told Farm Bureau later that shortline railroads are critically important to many farmers, ranchers and ag product shippers. Barley that Kauffman grows is taken by a shortline railroad from Burley to a Class 1 main line, where it is shipped to Colorado.

“To me, the shortline railroads are a lot like coops,” Kauffman said. “They service areas and people who can’t get service from the big guys. For some producers and shippers, they are the only game in town. This tax credit will help them to be more competitive and efficient, which means they will be there when we need them.”

The income tax credit can be transferred to a railroad customer or vendor but those transfer funds must be re-invested back into railroad infrastructure. 

Idaho has 885 miles of shortline railroad track so the maximum fiscal impact to the state in a single year from the credit could be no more than $3.1 million. 

A long list of farm groups, agribusinesses and economic development agencies from across the state supported the bill.

In a letter of support, Idaho Grain Producers Association President Matt Mosman, a Nezperce farmer, said the state’s “wheat and barley growers are entirely dependent on the state’s transportation system to get our commodities to local, national and international markets.”

“The 885 miles of shortline rail in Idaho are an important part of an integrated system we depend on. Like most of Idaho’s roads and bridges, these shortline railroads are in critical need of upgrades,” he said. “The maximum $3.1 million [per year] that this credit would provide is a timely and prudent investment by the state to improve our overall transportation infrastructure and to help guarantee that Idaho’s agriculture products continue to move to market.”

Two opponents of the legislation who testified during a public hearing on the bill said it was not right for the state to offer a particular industry a tax credit not available to every industry, and some committee members voiced concerns about helping to subsidize an industry. 

Rep. Doug Ricks, R-Rexburg, said he doesn’t like to subsidize an industry or use money where it’s not wisely used. However, he also said he realizes a lot of farmers and ag shippers in his area depend on shortline railroads.

“It would be devastating to my district if we lost some of those shortline railroads,” said Ricks, who voted in favor of the bill.

If the bill becomes law, it would be effective Jan. 1, 2020, and have a five-year sunset.

A similar bill passed the House last year but died in the Senate. 

This year’s bill was modified to address concerns that some lawmakers had.