Passenger and freight rail are part of a complex national transportation system for transporting people and goods. Currently, there are seven Class I railroads and over 500 short line and regional railroads operating in the United States. These railroads operate the nation’s freight rail system and own the majority of rail infrastructure in the United States. Railroads are the primary mode of transportation for many products, especially for such bulk commodities as coal and grain. In addition, railroads are carrying increasing levels of intermodal freight (e.g., containers and trailers), which travel on multiple modes and typically require faster delivery than bulk commodities. According to the Association of American Railroads (AAR), based on ton-miles, freight railroads carried about 43 percent of domestic intercity freight volume in 2009. In addition, according to DOT, the amount of freight rail is expected to continue to grow with a projected increase of nearly 22 percent by 2035. Intercity passenger rail service is primarily provided by Amtrak. Amtrak operates a 21,000-mile network, which provides service to 46 states and Washington, D.C., primarily over tracks owned by freight railroads. Federal law requires that freight railroads give Amtrak trains preference over freight transportation and, in general, charge Amtrak the incremental cost—rather than an apportioned cost— associated with the use of their tracks. Amtrak also owns about 650 route miles of track, primarily on the Northeast Corridor, which runs between Boston, Massachusetts, and Washington, D.C. Transportation may impose a variety of “external” costs that can result in impacts such as health and environmental damage caused by pollution. For example, in choosing to drive to work, a commuter may not take into account the car emissions’ contribution to local pollution, which may damage property or the health of others. Following are some negative effects of transportation: Greenhouse gas emissions, nitrogen oxide (NOX) and fine particulate matter, and other pollutants: Based on estimated data from the EPA, from 1990 through 2008, transportation greenhouse gas emissions increased 22 percent. Carbon dioxide (CO) is the primary greenhouse gas associated with the combustion of diesel (and other fossil fuels) and accounted for over 95.5 percent of the transportation sector’s greenhouse gas emissions. Based on 2008 data from the EPA, cars, light trucks, and freight trucks together contributed over 80 percent of the transportation sector greenhouse gas emissions (see fig. 1). While there are multiple approaches to address externalities in transportation, policies that provide incentives to shift traffic to rail can be appealing because they offer an option to address multiple externalities simultaneously by changing behavior to favor rail over other modes. For example, market-based policies that change the relative prices of the modes are likely going to be the most cost-effective. Policies such as increasing fuel taxes, imposing new fees such as a vehicle mile travel fee or a congestion charge, investing in increased capacity in one mode, or subsidizing travel in one mode can provide incentives to users to switch travel from one mode to another, and can achieve both a reduction in greenhouse gas emissions and alleviate congestion. Some stakeholders also believe that investing in rail may help to stimulate economic development. In order to obtain similar benefits without the goal of shifting traffic to rail, it might be necessary to introduce a suite of policies, each more directly targeted at a specific externality. For example, a congestion pricing policy may reduce traffic during peak travel times, but if it shifts traffic to nonpeak times, it may have a limited impact on overall emissions. Conversely, providing incentives to purchase more fuel efficient truck engines may do nothing to improve congestion or economic development. With respect to direct investment, the federal government typically has not provided extensive funding for freight rail or for intercity passenger rail outside of the Northeast Corridor between Boston, Massachusetts and Washington, D.C. In addition, according to Amtrak officials, funding has not been predictable, consistent, or sustained. However, recent legislation has increased the federal role and funding available for investment in intercity passenger and freight rail infrastructure. In 2008, PRIIA authorized the HSIPR program. The program is administered through DOT’s FRA, which has responsibility for planning, awarding, and overseeing the use of federal funds for the development of high-speed and intercity passenger rail. As of 2010, over $10 billion had been awarded through the HSIPR program to fund high-speed rail projects. Moreover, through the Recovery Act, Congress authorized the TIGER Discretionary Grant Program for investment in a variety of transportation areas, including freight and passenger rail. In 2010, DOT awarded over $2 billion in TIGER funding. The TIGER program was designed to preserve and create jobs and to promote economic recovery and investment in transportation infrastructure that will provide long-term economic benefits and assist those most affected by the current economic downturn. The TIGER grants are multimodal, and criteria were developed for a framework to assess projects across various modes. For more information on the HSIPR and TIGER programs, see appendix III. Decision makers may consider a number of factors in deciding between various alternative investments or policies. These factors may include the objective or goal of the proposed actions—for example, preserving and creating jobs or promoting economic recovery or reducing an environmental externality. Other factors, such as the benefits and costs of alternatives, are also important to consider in decision making. Some benefits are associated with reducing an externality and are part of the assessment of whether policy alternatives for addressing the externality can be justified on economic principles. Costs should also be accounted for when considering various investment or policy alternatives. For example, there are direct costs, such as construction, maintenance, and operations, and less obvious types of costs, such as delays and pollution generated during construction. There are tools that can be employed in evaluating proposed transportation alternatives, including benefit-cost analysis and economic impact analysis. Benefit-cost analysis is designed to identify the alternative with the greatest net benefit by comparing the monetary value of benefits and costs of each alternative with a baseline. Benefit-cost analysis provides for a comparison of alternatives based on economic efficiency, that is, which investment or policy would provide the greatest net benefit (i.e., greater benefits than costs). As we have previously reported, while benefit-cost analysis may not be the most important decision-making factor—but rather, one of many tools that decision makers may use to organize, evaluate, and determine trade-offs of various alternatives—the increased use of systematic analytical tools such as benefit-cost analysis can provide important additional information that can lead to better informed transportation decision making. Economic impact analysis is a tool for assessing how the benefits and costs of transportation alternatives would be distributed throughout the economy and for identifying groups in society (for example, by region, income, or race) that are likely to gain from, or bear the costs of, a policy. The use of benefit-cost analysis information is not consistent across modes or types of programs that provide funding to transportation projects. Competitive programs such as TIGER and HSIPR and loan guarantee programs such as TIFIA and RRIF require information on benefits and costs. Formula programs (such as the Federal-Aid Highway Program) do not necessarily require benefit-cost information. Federal guidance exists for conducting benefit-cost analyses, including OMB Circular No. A-94, OMB Circular No. A-4, and Executive Order No. 12893. The directive and related OMB guidance outline a number of key elements that should be included in the assessment of benefits and costs in decision making, as described in table 1. Specifically Executive Order No. 12893 and OMB Circulars Nos. A-94 and A-4 indicate that benefit and cost information shall be used in decision making, and the level of uncertainty in estimates of benefits and costs shall be disclosed. Other aspects of the benefit-cost analysis should be completed to the extent possible. For example, while the guidance suggests that impacts should be quantified and monetized, to the extent that this is not possible, qualitative assessments should be provided for those impacts that are not readily quantifiable. As we have previously reported in our work on transit investments, qualitative information can help ensure that project impacts that cannot be easily quantified are considered in decision making. Both the HSIPR and TIGER grant programs required applicants to provide information on proposed project benefits and costs. The type of information required, however, differed between the two programs and, for the TIGER program, depended on the level of federal funding sought, as described in table 2. In addition, while requirements for assessment of project benefits and costs were more specific for TIGER than for the HSIPR program, officials for both programs considered whether project benefits were likely to exceed project costs as part of their respective application assessment processes. In order to generate benefits—such as a decrease in the harmful effects of transportation-related pollution—through mode shift, a policy first has to attract sufficient rail ridership or rail freight demand from other modes that have higher harmful emissions. In practice, the extent to which rail can generate sufficient demand to draw traffic from other modes and generate net benefits will depend on numerous factors. In addition to mode shift, policies that produce price changes can prompt other economic responses in the short run, such as the use of lighter-weight materials or a shift toward more fuel-efficient vehicles; over the longer term, there is greater potential for responses that will shape the overall distribution and use of freight and passenger transportation services. For intercity passenger rail, factors such as high levels of population density, expected population growth along a corridor, and strong business and cultural ties between cities can lead to a higher demand for intercity passenger travel. In order for rail to be competitive with other transportation modes, it needs to be time- and price-competitive and have favorable service characteristics related to frequency, reliability, and safety.