U.S. taxpayers funding oil-laden freight trains despite safety concerns

NEW YORK (Reuters) - For the past 18 months, Americans from Albany to Oregon have voiced growing alarm over the rising number of oil-laden freight trains coursing through their cities, a trend they fear is endangering public safety.

In at least a handful of places, the public is also helping fund it.

States and the federal government have handed out tens of millions in public dollars to rail companies and government agencies to expand crude oil rail transportation across the country, a Reuters analysis has found.

The public assistance in states like New York, Pennsylvania, Ohio, Oklahoma and Oregon comes as railroads are posting record profits, and as state and federal authorities press for safety overhauls that the oil and rail industries have opposed, following several explosive derailments.

The Reuters analysis identified 10 federal and state grants either approved or pending approval, totaling $84.2 million, that helped boost the number of rail cars carrying crude oil across the nation.

The funds are a fraction of total public funding for railroads each year, and look small compared to the $24 billion railroads themselves are spending annually on infrastructure.

But with oil-train safety under heavy scrutiny, the public grants could be controversial and add to growing strains between the industry and some local communities who say they are ill-prepared to deal with oil spills or derailments.

"Look at the towns. All they're getting are more trains in their backyard and all the risk with no financial benefits," said Dan McCoy, the County Executive in Albany, New York, where taxpayer funds have contributed to growing oil-train shipments.

In May, Albany's sheriff, Craig Apple, warned that regional emergency crews weren't equipped to respond to any major derailment.

"I am not seeing any increases in tax revenue, but I am seeing an increase in the cost of emergency services," McCoy said.

Since 2008, there have been at least 10 major oil-train derailments across the U.S. and Canada, including a disaster that killed 47 in a Quebec town last July.

Officials and rail executives offer a counter-argument: the funds help improve safety for an industry that is helping revive the economy in some places.

Last year, New York Governor Andrew Cuomo awarded CSX Railroad a $2 million grant to add a second 3.6-mile rail line just south of the state capital in a county that now handles about a fourth of the Bakken's oil, a light, volatile crude whose vapors have exploded in several past derailments.

CSX spokesman Rob Doolitle said the new line allows the railroad to idle fewer trains in the region, block fewer crossings, and serve at least 200 different businesses more efficiently.

"Local communities benefit from increased capacity," Doolittle said. CSX posted record revenues of $3.2 billion in the third quarter.

AN INDUSTRY TRANSFORMED

The taxpayer dollars are going to a rail industry that has transformed the U.S. energy market: Amid a shale-drilling boom that has overwhelmed the nation's pipeline network, oil-train traffic has surged at least 42-fold since 2009, and 415,000 railcar loads of oil plied the nation's tracks last year.

As oil-trains increasingly make up for a lack of pipelines, they share the tracks with passenger and other freight trains on some of the busiest U.S. rail corridors. Emergency responders in several regions have complained that they lack information to track them and quickly respond to accidents.

While federal law now requires rail operators carrying Bakken crude to report routes and the number of trains that transit through each state, railroads have been reluctant to share specifics publicly, citing security risks.

Philadelphia is one of the unlikely locales that has been both alarmed and enriched by the oil-by-rail industry.

In 2012, The Carlyle Group led a rescue of the East Coast's biggest refinery, which had been slated for closure, aided in part by a state-backed aid package that included $10 million to build a new rail terminal.

The 335,000-barrel-a-day plant is making money once again thanks in large part to the rail terminal, which receives six miles of oil-laden railcars daily from North Dakota’s Bakken.

In September, Philadelphia Energy Solutions (PES), an oil refining complex controlled by hedge fund Carlyle Group, announced plans to sell shares in its crude-by-rail terminal, a move that may fetch hundreds of millions of dollars and reduce its corporate tax burden.

Carlyle declined comment, but the company has previously said that government assistance helped to save at least 850 jobs at PES and boost Pennsylvania's economy.

Earlier this year, six railcars transporting Bakken oil to the PES rail terminal derailed on a bridge over the Schuylkill River in Philadelphia’s Center City. No oil spilled from the CSX-operated train, but images of railcars teetering above the city's vital waterway shocked locals and prompted protests.

"It spooked a lot of people in Philadelphia, and really raised the profile of the issue of crude by rail, an issue most people don't think about," said Matt Walker, a director with the local Clean Air Council.

CONGESTION RELIEF

Citing high costs, oil and rail industry groups have resisted some of the U.S. Department of Transportation's recent proposals to enhance crude-by-rail safety, which include quick retirement or retrofitting of older, accident-prone railcars, lower speed limits, and mandatory electronic railcar braking systems.

Railroads and local transport authorities say public grants are a public good.

Since 2011, Oklahoma has received two federal grants worth $8.6 million that were used to fund privately-held FarmRail System, a regional rail operator, to move more crude by rail out of the state's Anadarko Basin.

"We see these grants as improving public safety, much like you spend money on improving a highway," said Gary Ridley, the head of the Oklahoma's transportation agency. Trains are better than oil trucks, which clog up roads, he said. Oklahoma Governor Mary Fallin recently announced a $100 million spending package to upgrade rail crossings in the state.

In Oregon, oil terminal giant Global Partners successfully lobbied state and county officials to fund $8.9 million in upgrades to the Portland and Western Railroad, which runs next to the Columbia River. As a result, Global was able to increase the number of oil-trains to its private rail hub in the state by more than a third, to 38 per month. Global declined comment.

"It really doesn't matter whether the train is carrying crude oil or cotton puffs, they have the right to pass through," Jerry Cole, the mayor of Rainier, Oregon, where oil-trains pass through daily. "All I can do is to make it as safe as possible."

(Reporting by Jarrett Renshaw, editing by Jonathan Leff and John Pickering)