Since its beginning in February 1827 with the Baltimore & Ohio Railroad, the U.S. rail industry has had a seemingly symbiotic relationship with the prevailing governments. During the late 19th and early 20th centuries, railways were a major contributor to the country’s economic growth, both from their own profits and share price appreciation as well as through the utility they provided other industries and the general public. They radically improved access to raw materials and provided the first reliable cross-country transportation. Much of the history of the United States is deeply intertwined with the history of the railroad sector.
Two early examples of government regulation that impacted railroads are the Pacific Railroad Acts of 1862 and 1864. These provided financial aid to companies in the form of land allowances and mortgage bonds based on the amount of westward track laid. The bonds were valued at $16,000, $32,000 and $48,000, with the price increasing for track laid progressively further west. These amounts equate to $368,139, $736,279 and $1,104,419 in 2015 dollars adjusted for inflation.
Another example of government regulation impacting the railroad sector occurred in 1966 with the Department of Transportation Act which created the Federal Railroad Administration (FRA). The newly formed administration was primarily charged with ensuring the safety of both commercial and passenger trains.
Under blue sky laws, certain securities issuers, including railroads, were exempt from reporting requirements that other issuers had to comply with. These requirements were modeled after the Uniform Securities Act to protect investors from fraud on investments that are not regulated at the federal level and do not fall under the jurisdiction of the Securities and Exchange Commission (SEC). The term “blue sky law” was first associated with legislation passed in Kansas in 1911. Many other states followed with similar statutes in the following 22 years.
Amtrak has received subsidies ranging from hundreds of millions to billions of dollars since the early 1970s under the Rail Passenger Service Act. In the 1960s, after the introduction of the FRA, it became evident that passenger railway service was unprofitable. However, the utility it provided as a public service was deemed imperative to the well-being of the country by both Congress and President Nixon.
The American Recovery and Reinvestment Act of 2009 allocated $8 billion toward the development of a network of high-speed rail lines connecting major American cities. President Obama was a strong advocate of the initiative and signed it into law.
Because the consequences of railway mishaps are substantial, the FRA has a significant budget to help account for disaster recovery, approximately $1.6 billion in 2014. Railway accidents can be caused by both malfunctioning equipment and human error. The FRA is charged with investigating accidents and implementing measures to ensure that steps are taken to prevent avoidable accidents from reoccurring and negatively impacting the railroad sector.