A risky proposition: The ‘regulatory hole you could drive a train through’

This article was produced in collaboration with the New England Center for Investigative Reporting, a nonprofit news outlet in Boston that holds the powerful accountable and trains a new generation of investigative reporters. 

GRAFTON, Mass. — In early 2012, residents of this sleepy town began to notice an unusual amount of activity around the Grafton & Upton rail yard at the north end of town. An old barn that had stood for over a century was knocked down. Bulldozers came out, clearing the land.

The tiny 16.5-mile railroad had been nearly defunct, but was purchased in 2008 by Jon Delli Priscoli, a major local developer with a penchant for railroads; he also owns a Thomas the Tank Engine theme park 70 miles away.

At least one town official who visited the site to ask about the construction said he was told that the railroad’s activities weren’t subject to review by the town.

In December 2012, Delli Priscoli finally unveiled his plans to more than 100 residents at a meeting in the municipal gym. The railroad yard, he announced, was to become a propane transfer, or transloading, facility, meaning that propane would be taken there by rail and unloaded onto tanker trucks to be distributed. With four 120-foot-long, 80,000-gallon storage tanks to be filled by up to 2,000 train tank cars a year, it would be the biggest rail propane facility in Massachusetts.

Residents were dumbfounded: The location was in the middle of a residential neighborhood, less than 2,000 feet from an elementary school and atop the town’s water supply. But aside from an application to the state’s fire marshal (still unapproved by publication date), the railroad’s owner had not requested nor obtained, town officials say, any local permits, environmental assessments or zoning variances — or permission. 

The idea that railroads should be exempt from local laws is as old as railroads themselves. From 1887 until the mid-1990s, railroads were regulated by the federal Interstate Commerce Commission, which oversaw virtually all aspects of national rail commerce. But starting in the 1970s, Congress began to deregulate the industry. Restrictions the railroads found burdensome were whittled away and the ICC was itself abolished in 1995. It was replaced by the STB, with half the budget of its predecessor and a fraction of its historic staffing: Where the ICC had a peak staff of roughly 2,000 to regulate railroads in 1980 — a number that had dwindled to just over 400 employees in 1995 — the STB has fewer than 150 employees.

Tiny as it is, the STB was nonetheless invested with exclusive authority over all commercial aspects of the roughly $60 billion domestic freight rail industry.

As with its counterparts such as the Federal Communications Commission and the Federal Trade Commission, the STB is both a regulatory and adjudicatory agency and acts, often, more like a court than a traditional federal department. Its three-member board issues opinions to settle disputes between railroads and shippers or between railroads themselves.

It also decides the question of what constitutes a transportation by rail carrier and whether a given company is exempt from state or local rules.

But unlike that a traditional court, the STB’s mandate is also to ensure that minimal burdens are placed on rail commerce — making the agency, some say, an inconsistent arbiter of the industry it regulates.

“Any failure to give [railroad owners] their way will result in the bankruptcy of the railroad,” sarcastically observed Robert Szabo, a former executive director of a railroad shipping industry group. “No rational human being would listen to that and think that has any merit, except the people at the STB — and, generally, most members of Congress.”

STB officials acknowledge that laws pre-empted at the local level often have no equivalent in federal regulations. But they argue that the ICCTA, the law that created the agency, restricts the STB’s authority to a relatively narrow set of regulatory tools.

But that conclusion isn’t absolute: Some decisions were left to the STB, and over the years, it has interpreted its jurisdiction to include activities that bear little resemblance to traditional rail traffic. Starting around the early 2000s, companies began opening solid waste facilities alongside railroad tracks — without permits, zoning approvals, environmental analyses or almost any other permission from state or local officials. The companies argued that they were exempt from these requirements because the waste constituted transportation by rail and was therefore exempt from state and local laws — and the STB mostly agreed.

Marc Goldstein, an environmental attorney who has represented towns that fought the waste-by-rail operations, says that industrial and hazardous materials facilities are normally subject to any number of requirements: environmental impact reviews, site approvals, zoning variances, wetland impact studies and building plan approvals. In a case like the proposed propane facility in Grafton, he speculated, “The pure fact that you want to do it in a residential area — you’d never get a variance for that.”

In 2008, Congress passed the Clean Railroads Act, excluding solid waste facilities from railroad exemption. But the law didn’t address other activities ancillary to railroads, such as the storage and transfer of toxic and flammable materials — and the construction of massive transloading facilities. 

Broad environmental laws like the federal Clean Air and Water Acts are mostly either prescriptive, setting limits for states to meet, or else are punitive, prescribing penalties for environmental damage. But when it comes to something like a transloading facility, there simply is no overarching federal permit process that applies, said Allison Fultz, an attorney with expertise representing towns in legal battles with railroads. That job, she said, has always been left to the states.

“It can be the case that every element of what the railroad wants to do makes no sense from a community-safety point of view, but they’re pre-empted,” she said.

The STB does have its own office of environmental analysis, though, and the power to require and assess environmental reviews — but it generally doesn’t require them for ancillary facilities and can effectively prevent other state and local agencies from doing so.

STB officials have acknowledged, even publicly from time to time, that the result of its interpretation of the law is a gap in the law. But the agency takes the position, as STB attorney Charles Vance put it in July in a hearing on the Grafton case against the board, “The [statute] that Congress adopted necessitates that regulatory gap.”

The problem with the status quo, says Stuart Flashman, an attorney who is working on several cases involving railroad pre-emption, is that “If you don’t allow the states and towns to consider these things as their problem, then it’s nobody’s problem.”

Grafton has already had a glimpse of what pre-emption can look like on the ground. Less than 10 miles away, in the town of Upton, the Grafton & Upton Railroad has already opened a transloading and repackaging facility for wooden pellets. Also located near residential properties, the facility operates late into the night and creates a din that, neighbors have told state officials, exceeds state noise limits. (State regulators conducted a noise study that resulted in some voluntary noise abatement by the railroad, but residents say the noise persists.)

Diana Del Grosso, one of several plaintiffs in a lawsuit brought against the Surface Transportation Board on behalf of residents in Upton, said the noise was like “a really loud Shop-Vac, but with rocks clanging through pipes.

“We’re all trapped in our houses,” Del Grosso said. “Nobody will buy them now.”

The proximity of hazardous materials to residential neighborhoods has also raised alarms. In 2013, 100 gallons of styrene, a noxious and flammable chemical, was spilled at the railroad yard in Upton. (The spill was cleaned up without further incident.) And in June, a train carrying a tank to store propane derailed on its way to the transloading yard. No one was injured, but residents were shaken. 

In March 2015, Rep. James McGovern, a Massachusetts Democrat whose district includes Grafton, filed an amicus brief on behalf of the town and in May introduced the Safe Communities Act, which gives municipalities more say over liquefied natural gas (propane) transloading facilities in their towns.

“I’m a huge supporter of the railroads. I understand the importance of pre-emption as a concept,” said McGovern. “But there are serious safety issues here … I don’t think the Surface Transportation Board was meant to be simply a rubber stamp on everything a railroad wants.”

In 2014, the Environmental Protection Agency approached the STB with a question of fundamental importance regarding approval of a state environmental plan by California that included new restrictions on train idling. The plan is required by federal law and, if approved by the EPA, would carry the force and effect of federal law.