John West is entirely correct when he points out that the ICC's rigid regulatory regime made little economic sense in the era when railroads had lost their monopoly.
Inability to rationalize unproductive assets combined with lack of freedom to make competitive rates, labor intransigence, and management incompetence to bring down a dozen or more Class 1's back in the 60's and 70's. The Staggers Act (1980) changed things for the industry as a whole. Railroads were deregulated, and the rail renaissance began. But rail carriers still had to contend with light density lines that generated a return on investment far below the cost of capital. It's not prudent to borrow money at, say, six percent so you can reinvest in assets generating, at best, a one two percent ROI. On the other hand, failure to reinvest impacts efficiency, safety, service and revenue. The already weak asset becomes less attractive than ever. It's a downward spiral. Branch line abandonments were one strategy management adopted to hazard scarce capital resources.
In the 3-R and 4-R Acts of 1973 and 1975 respectively - and at the state level - government finally tried to address the light density rail line issue. There were several approaches adopted - only one of which involved abandonments.
1. The process of discontinuing service was made easier for true "basket cases". When Conrail was created from the wreckage of the eastern bankrupts, the federal government itself (through USRA) made the decision on which branches were hopeless. They were excluded from the Final System Plan, and that was that. Currently almost automatic approval is given to abandonments on lines where no traffic has been handled for two years. The industry no longer wastes time and effort on killing off its "dogs."
2. For lines that can be rescued, shipper groups, industrial development agencies, state DOT's and entrepreneurs are encouraged to step up to the plate to purchase or lease them. As a result, hundreds of new short lines have been formed. The start-up process for creating new rail carriers is far, far less burdensome and time consuming than it was under the ICC.
3. Restrictive labor conditions (New York Dock, etc.)- big impediments to short line spin-offs - have been eliminated.
4. Public capital in the form of state grants, low interest RRIF Loans and maintenance tax credits have been offered. These help short lines cope with decades of disinvestment when their lines were runder Class 1 ownership.
The present abandonment process, while simpler than in ICC days, does set some parameters. The Surface Transportation Board allows abandonment if a railroad can demonstrate "significant operating losses". The carrier can try and justify the abandonment by showing it could earn a higher ROI elsewhere - but the STB says that's "usually not sufficient to overcome a strong public need for service".
The STB may order continuance of operations if a responsible party makes an offer of financial assistance. It can order a line "rail-banked" to save the right of way for future reinstatement. If there is an offer to acquire the line from a responsible party, the STB can order the railroad sold at Net Liquidation Value (NLV) or Going Business Value, whichever is higher.
The bottom line is that if a rail line has any real economic value, it is unlikely to be abandoned.
