Railroad Land Grants: Paid in Full
Association of American railroads
January 2015
Summary
Some rail critics claim that because some railroads received government land grants more than
135 years ago, railroads today owe a debt to the public that they should repay by charging
below-market rates to certain shippers, by subsidizing passenger rail, or in some other way.
Government studies have shown that railroads have already paid several times over for the
land grants they received, mainly by giving the government discounted rates for decades. The
days are long past when railroad land grants should be a source of controversy.
Land Grants Were Critical to America’s Early Development

During America’s early development, the federal government distributed land to a variety
of groups and individuals to meet national objectives. Homesteaders, schools, churches,
hospitals, railroads, road builders, canal builders, and others received land grants.
Railroads accounted for less than 12 percent of total federal land grants.

Congress offered land grants to states and individual railroads to use as rail rights-of-way
and to help finance costly rail construction. From 1850 to 1871, approximately 18,700
miles of rail line were built with land grant aid. The overwhelming majority of U.S. rail
lines, though, were built without land grant assistance.

Thanks in part to land grants, a national rail transportation network able to meet the
economic and defense needs of a rapidly developing nation was built much earlier than
would otherwise have been the case. The benefits to the America public were
tremendous. During the land-grant era, railroads:

Provided a way for cities and towns to develop in previously inaccessible
areas, enhancing the value of both public and private lands;

Created a market for hundreds of millions of acres of public lands which
previously could not be sold at any price because of lack of transportation service
and distance from population centers;

Accelerated agricultural and industrial development by providing a reliable
means for mineral, timber, and agricultural products to get to market;

Provided a way for dispersed areas of a growing nation to be bound together
economically, socially, and politically.
Railroads Have More Than Repaid the Value of Their Land Grants

Unlike other land grant recipients, railroads had to compensate the government for the
value of the land granted to them. Compensation mainly took the form of decades of
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sharply reduced rates on government-related passenger and freight traffic. These
special reduced rates lasted until 1940 for government civilian traffic and mail and until
1946 for military property and personnel — after railroads transported huge amounts of
World War II materials and personnel.

Two studies mandated by Congress compared the value of
the decades of reduced government rail rates with the
value of the land granted to railroads. Both studies found
that railroads have more than repaid the value of their
land grants:

A 1943 study by the Board of Investigation and
Research, an independent agency created by the
Transportation Act of 1940, concluded that the
value of compensation provided by railroads to the
federal government has “fully counter-balanced
these aids which were conferred many years ago.”

A 1977 study by the U.S. Department of
Transportation concluded that “...the federal
government has been a net beneficiary of its
railway aid programs,” having been more than fully
reimbursed for its land, with interest.

In 1945, when Congress relieved railroads of their obligation to provide the government
with reduced rates, Congress stated that, “...through the years the government has gotten
all and more than it bargained for in the original land grant transaction...the time has
come for the government to close its books on this transaction [and]...relieve the land
grant railroads of the injustice of being required to continue to make payments on a debt
that has long been extinguished.” Likewise, in 1951, a Senate committee observed that
railroad land-grant aid “has been repaid several times over.”

Given these circumstances, the term “land grant” in the railroad context might more
appropriately be changed to “land sale.” In a decision involving a coal-hauling railroad
that had received land grants, the U.S. Supreme Court noted that “the land grant, made
many years ago, in aid of the railroad enterprise was not a mere gift or gratuity…The
carrier’s obligation to haul property of the United States at reduced rates was a part of the
consideration for which the land grant was made. Part of the appellant’s compensation
for hauling the coal was paid in land, and the balance was paid in money.”

Some rail industry critics claim that railroads are still indebted because their land-grant
property is worth more today than it was in the past. Everywhere else in the economy,
after an asset is transferred and paid for, all subsequent appreciation or depreciation in
value accrues to the new owner. For example, if a house is sold and then appreciates in
value by 10 percent, the new owner is not expected to compensate the previous owner
for the difference. Yet, some seem to want this principle applied solely to railroads that
received land grants. That makes no sense.
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