Md. funds industry's rail line Taxpayers' millions keep trains alive for Shore chicken farmers


October 18, 1998|By Greg Garland | Greg Garland,SUN STAFF

Every time a rail car filled with grain rolls into Perdue Farms' large poultry feed mill in Hurlock on the Eastern Shore, Maryland taxpayers are picking up part of the tab.

The reason is the state's extensive support for the Maryland & Delaware Railroad Co. (M&D), which provides rail service to Eastern Shore businesses, many of which are tied in one way or another to the region's vast poultry industry.

In a little-known but sizable subsidy, the state has poured millions of dollars into the freight rail operation over the past 21 years. State officials say the money is well spent because it helps preserve 22,000 jobs tied directly or indirectly to the poultry industry.

"It's about jobs -- the preservation of jobs, the growth of jobs," said David L. Ganovski, who manages the state Mass Transit Administration's freight rail services division.

Most other states have programs to support freight rail services, he said, adding that virtually all forms of transportation -- highways, ports, airports and railroads -- are subsidized in some fashion.

Ganovski and poultry industry representatives said it is uneconomical to move bulk goods, such as large quantities of corn and soybeans, over long distances by truck. The poultry industry that dominates the Eastern Shore's economy would be threatened if rail service was not available at affordable rates, they said.

"It could cost anywhere from two to four times as much [to move goods by truck], depending upon the commodity, the weights of those commodities and the distance they are being moved," Ganovski said.

J. William Satterfield, executive director of Delmarva Poultry Industry Inc., a trade association, said transportation costs are a big concern.

"In this industry, companies measure the costs of production in the hundredths of a cent per pound -- not a penny per pound or a tenth of a cent per pound -- a hundredth of a cent," Satterfield said. "Everybody is always striving to have lower costs of production. If we didn't have the railroads, this industry probably wouldn't exist."

Tita Cherrier, a spokeswoman for Perdue Farms, said grain accounts for about two-thirds of the cost of growing chickens.

She said losing rail service would affect the competitiveness of Perdue and other poultry companies in the region.

Most states have programs similar to Maryland's to support short-line freight railroads, those that operate on tracks branching off major carriers' lines, providing service that the bigger companies find unprofitable.

Short lines stepped into a vacuum created in the 1970s, when bankruptcies of major rail carriers such as Penn Central, restructurings and deregulation led big carriers to abandon service on all but their heaviest-volume lines.

The abandoned lines were sold to smaller, private railroad companies with lower overhead. In some cases, states bought rail lines to preserve service in certain areas.

"The basic phenomenon of offering government assistance to preserve this kind of service is well established," said Curt M. Grimm, a business professor at the University of Maryland, College Park.

In recent years, Maryland has spent $3.5 million to $4.5 million annually on its short-line rail program. The money helps pay for upgrading road crossing and bridge, rerailings and similar projects.

Besides the Eastern Shore rail lines, the state owns sections of rail lines in Carroll and Frederick counties that are used by the Maryland-Midland Railway Co. and in a few other areas of the state.

Ninety of the 127 miles of active rail lines the state owns are operated by M&D. The two lines run off a Conrail/Norfolk-Southern line, from Townsend, Del., to Chestertown and Centreville and from Seaford, Del., to Preston and Cambridge.

The state also owns 54 miles of tracks from Clayton, Del., to Denton and Easton, but M&D quit running trains on it in 1982 when the volume of traffic fell.

Another operator, the Chesapeake Railroad Co., waged a long, unsuccessful battle to reopen the line. It briefly ran fewer than 30 freight cars a year on the line in 1995-1996.

William G. Bartosh, Chesapeake's owner, said state officials posed nothing but obstacles over the 15 years he doggedly pursued the project, in contrast to their support for M&D.

In M&D's case, the state takes care of many of the big expenses of equipping and running a railroad, The state bought the locomotives the railroad company uses, owns the rail lines, pays M&D to maintain the tracks and gave it a no-interest loan to buy hopper cars.

Alice C. Saylor, vice president of the American Short Line and Regional Railway Association, said that is an unusual degree of state government support for a privately owned short-line railroad company. "It does seem like a lot of state support, but obviously the state felt it was justified in this case," Saylor said.

No government help

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