How Government Regulation Impacts the Railroads Sector?

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.

Key Takeaways

  • During the 19th century, the railroad companies comprised one of the largest and most influential industries in the United States.
  • Railroad expansion to the West and into major cities was helped in great part due to incentives and support from the federal government.
  • With the creation of Amtrak in 1971, America's interstate passenger rail service was essentially federalized.
  • The 2021 infrastructure bill grants a record $66 billion to Amtrak to improve infrastructure and modernize its service.

Government Regulation That Impacted Railroads

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 at the time, with the price increasing for track laid progressively further west. In 2022, these amounts amount to around $415,000, $830,000. and $1,250,000, respectively, when adjusted for inflation.

Another example of government regulation impacting the railroad sector was the Department of Transportation Act of 1966, which created the Federal Railroad Administration (FRA). The newly formed administration was primarily charged with ensuring the safety of both commercial and passenger trains.

Blue Sky Laws

In the early 1900s, blue sky laws were put into effect by individual states to protect investors from fraud by requiring securities issuers and brokerages to register and abide by certain reporting requirements. The Uniform Securities Act, first promulgated in 1930 and revised in 1956, provided a model for states wishing to enact laws to prohibit securities 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). However, certain securities issuers, including railroads, are exempt from these state laws.

Government Support of Railroads

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 devoted to safety and operations, approximately $222 million in FY 2019. Railway accidents can be caused by both malfunctioning equipment and human error. The FRA is charged with investigating accidents and implementing measures to ensure steps are taken to prevent avoidable accidents from reoccurring and negatively impacting the railroad sector.

America's railways received another boost of $66 billion in federal spending resulting from the 2021 Infrastructure and Jobs law signed by the Biden Administration. This amounts to the largest investment in passenger rail since the creation of Amtrak in 1971, handing the agency billions of dollars to address its repair backlog, modernize its fleet and reduce trip times. It can also help with rail line expansion into new cities and routes across the U.S.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Library of Congress. "The B & O Railroad."

  2. Central Pacific Railroad Photographic History. "Pacific Railroad Acts."

  3. U.S. Department of Transportation. "Federal Railroad Administration."

  4. Uniform Law Commission. "Forming a More Perfect Union: A History of the Uniform Law Commission," Appendix E.

  5. Uniform Law Commission. "Uniform Securities Act, Section 201," Pages 38-39.

  6. Congressional Research Service. "Amtrak: Overview," Page 1.

  7. Congressional Research Service. "Improving Intercity Passenger Rail Service in the United States," Pages 1-2.

  8. U.S. Congress. "American Recovery and Reinvestment Act of 2009, Title XII," Page 123 Stat. 208.

  9. Federal Railroad Administration. "Budget Estimates Fiscal Year 2020," Pages 23-26.

  10. Federal Railroad Administration. "Railroad Safety."

  11. New York Times. "Billions in Amtrak Funding Could Modernize Aging Rail System."