The AAR recently petitioned the Surface Transportation Board (STB) — the adjudicatory and regulatory panel that oversees railroad economic dealings — to incorporate cost-benefit analysis into rulemaking proceedings.

The implications could be significant should the STB take up the petition, which regulatory experts across the ideological spectrum view as a “best practice.”

What is Cost-benefit Analysis?

Cost-benefit analysis is an important tool that helps agencies like the STB:

  • Better understand the positives and negatives of possible regulatory action;
  • Better articulate the purpose of regulation; and
  • Weigh potential outcomes before instituting policy that could have major implications to the economy.

This makes decisions easier to understand, and more transparent to the public. If there is very little benefit, except perhaps to a narrow special interest group, then the analysis will make that clear.

Forced Access: A Potential Case Study

For instance, in the STB’s forced access proposal — which would force a railroad to move customer freight cars over its tracks and then hand them over to competitors — the STB could use cost-benefit analysis to assess the financial implications of disrupted railroad operations. AAR and many outside observers believe that widespread forced switching would reduce fluidity on the mainline network and in terminals, which in turn would depress investment and negatively affect the majority of rail shippers. Understanding these costs is crucial to maintaining a healthy rail network and national economy.

Incorporating cost-benefit analysis into STB actions would provide a critical tool for the Board and support the goals of its members to regulate wisely. As Jerry Ellig, formerly of the Mercatus Center at George Mason University and now a scholar at the George Washington Center for Regulatory Studies argued in the case of forced switching, the Board’s proposal “was accompanied by little or no analysis of alternative solutions that might be more effective or less burdensome.” That is the sort of information that “a thorough regulatory impact analysis” would have included, he says.

The Power of Data

Given the importance of accurate information, the AAR also called on the STB to ensure that all analysis at the Board includes the most current and reliable data possible. It is also why the AAR urged the Board to consider the cumulative impact of regulations when proposing and adopting new rules — as nothing happens in a vacuum, especially not in a networked industry. Government intervention into operations on the one side of the country can reverberate across the country.

As noted in the filing, cost-benefit analysis is also “a critically important tool that can help the Board fulfill its statutory mandates to ‘minimize the need for Federal regulatory control over the rail transportation system,’ ‘foster sound economic conditions in transportation,’ and ‘ensure effective competition and coordination between rail carriers and other modes’.”

The petition is straightforward and would bring the STB in line with all executive government agencies, which are required to conduct analysis when proposing new rules. The petition would also align STB to other independent agencies with the power to substantially impact national commerce, such as the Federal Communications Commission, which voluntarily adopted new regulations that require cost-benefit analysis.

While the current administration vigorously supports cost-benefit analysis, so too have past presidents from both parties. President Barack Obama’s regulatory czar, Cass Sunstein, was and remains a particularly vocal supporter. Large factions of Congress also support cost-benefit analysis, including the use of this practice at independent bodies like the STB, which are not required to do so.

Implementation is Highly Feasible

The AAR believes there should be no principled objection to a process that is already widely used in rulemaking. As they noted in their filing, implementation is highly feasible as “stakeholders and outside experts already disclose significant public information, and parties participating in a proceeding are more than capable of submitting to the Board up-to-date and reliable information to make decisions that reflect economic conditions in the real world.”