SAN FRANCISCO (CN) — Two of the nation's biggest railroads on Thursday asked a federal judge to block a new California law, which taxes trains, but not trucks, that carry hazardous materials.
California Senate Bill 84, enacted in June, requires railroads to collect fees from customers hauling hazardous materials, to pay for emergency response training and equipment.
BNSF and Union Pacific Railway sued the state in August, claiming the law unfairly forces railroads and their clients to foot the bill for emergency response preparedness, though truck accidents are "far more frequent."
The railway giants say the state also overstepped its bounds because only the federal government has authority to regulate interstate railroads.
During a hearing Thursday, attorneys for the railroads urged U.S. District Judge Richard Seeborg to issue an injunction and stop the law from taking effect by year's end.
BNSF attorney Benjamin Horwich, of Munger, Tolles and Olson, said it was unfair that fees paid by railroad customers could be used to deploy emergency response equipment for truck accidents, though trucks are exempt from paying those fees.
Myung Park, a deputy attorney general for the state, replied that money from those fees is geared specifically for rail accidents. He said local agencies must reimburse the fund if they use that equipment for truck accidents.
"The state's claim that there is a distinction to be drawn between trucks and trains, which is how you justify this legislation, doesn't stand up to the facts," Horwich said. "That trains pose some unique risks that need to be addressed in this way."
In its opposition to the motion for an injunction, the state cited a 2015 study that found "significant gaps and deficiencies" in the state's ability to respond to catastrophic spills of hazardous materials or railway fires caused by train accidents.
The governor's Office of Emergency Services found rural Northern California in particular had no haz-mat teams that met standards for responding to a catastrophe in zones designated as "high hazard areas for derailments."
Park said the state projects growth in the use of railroad transportation, with half a dozen rail projects already slated in California.
"The Legislature sees that, and sees that these rail lines go through areas that are problematic — populated areas, mountainous areas, over rivers and waterways," Park said. "We're not targeting them just because they're railroads. We're addressing a specific, unique problem."
But forcing railroad companies to charge their customers $45 per railcar carrying hazardous materials would put the industry at a competitive disadvantage, Horwich argued.
Even though the law lets railroads charge a 5 percent fee to recover the costs of administering and collecting fees, Horwich said, the law still creates an undue burden that will cause irreparable harm to the rail industry.
The railroad firms submitted declarations from managers, industry representatives and economics experts, attesting to the competitive harm railroads will suffer if the fees take effect.
But Park told Seeborg that same evidence was presented in a separate Sacramento County Superior Court lawsuit in May, and rejected by a judge who found the evidence speculative and denied the motion for a preliminary injunction.
Horwich disagreed, saying that judge considered only potential harm to carriers that pay to ship hazardous materials by rail — not deleterious effects on the railroad industry itself.
"These are the iron laws of economics," Horwich said. "When you impose a tax on a transaction, the two parties of that transaction will share the burden of that tax. We will have to reduce some rates to retain customers."
In his final pitch to the judge, Horwich argued that the railroads already pay for and maintain robust emergency response teams to deal with hazardous material spills and accidents.
He said the railroads should not be forced to foot the bill for a state public service that should be funded by general revenue, not a tax on railroads and their customers.
Seeborg revealed earlier in the hearing that he considered the $45 charge on railcars a fee for a service related to the operation of railroads, not a tax for a general public benefit, as the railroad companies framed it.
"You're suggesting it's taking money from the railroads to use for a general public benefit purpose, but it facilitates the operation of the railroads," Seeborg said.
The judge ended the hearing after about two hours, revealing at times that he believes the state has authority to impose a fee for public safety but also suggesting that the law may unfairly disadvantage the railroad industry compared to other forms of hazardous material transport.
The state's Board of Equalization said railroad firms were to be required to start keeping records and collecting fees on Oct. 1, according to its motion for a preliminary injunction.
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