Railroads of New York, Inc

RAILROADS OF NEW YORK, INC. SEASONS GREETINGS

Norman R. Schneider, RONY Executive Director December 2010 ______MESSAGE FROM OUTGOING EXECUTIVE DIRECTOR Since October of 2003, I have had the distinct pleasure of serving as the Executive Director of Railroads of New York, Inc. – a then new not for profit statewide organizations that seeks to improve railroad freight within the Empire State. During the more than seven years, I have watched with pride as the organization grew substantially from about 15 members to 57 at the end of 2010. More importantly, RONY is now recognized as the voice of our industry within New York State and a leader nationwide.

As I retire from RONY, I would like to take this opportunity to thank all those who have contributed to this success, with special praise to the past RONY Presidents – Bob Grossman, Bruce Lieberman and Steve Fisk, as well as the various members of the Executive Committee who oversee the day-to-day operations of RONY. RONY has been very fortunate in having these individuals contribute considerable time and effort to advancing the growth of RONY and helping to make it a premier organization. Special thanks are given to Mary Jane Franz, who has served as Treasurer of RONY since its inception and David Monte Verde, who continues to lead RONY’s efforts to attract additional industry members.

For those of you who have not yet had the privilege of serving on the RONY Board as a voting member or on the Executive Committee, I urge you to consider it in the future. As with any organization, it will only continue to grow with the strong support of its members. RONY is very fortunate to have Plummer and Associates continuing to represent the rail freight industry in the future. Again, thank you for letting me have the privilege of serving as your Executive Director. RONY provides a tremendous product that deserves increased support from federal and state elected officials as rail freight is the most environmentally friendly method of moving goods today. I wish each and every one of you a happy holiday season and a wonderful future.

Sincerely,

Norm Schneider

RONY EIGHT ANNUAL MEETING HELD DURING TRAIN TRIP RONY held its 8th Annual Meeting on December 8th aboard an MA&N train (see photo below) that traveled from Union in Utica to the Booneville area and back through the courtesy of David Monte Verde and Genesee Valley Transportation (GVT) and his staff. It was a memorable trip that combined a successful business meeting with an opportunity for over sixty participants to dialogue while enjoying the scenery and a wonderful lunch buffet sponsored by Bowers and Company and Lincoln Insurance.

Among the key actions taken during the business meeting was the election of the 2011 RONY Executive Committee, as follows:

 President – Stephen Fisk, Canadian Pacific Railway  Vice President – Jerry Vest, Genesee and Wyoming, Inc.  Secretary – David Monte Verde, Genesee Valley Transportation  Treasurer – Mary Jane Franz, Buffalo Southern Railroad  Members-At-Large – Michael Fesen, Norfolk Southern Railway, - John McCreavy, SMS Rail Lines, and - Nathan Fenno, New York, Susquehanna and Western Railroad

Three Associate Members were also elected to the RONY Board of Directors as voting members for 2011. They are:  Robert Badger, Clough Harbour and Associates  Carmen Garozzo, Bergmann Associates, and  James Bowers, Bowers and Company

2 Congratulations to the above named individuals who will represent Railroads of New York for the coming year. Please provide them with as much support as you can, as 2011 promises to be a difficult year in terms of federal and state finances and polarized governing bodies.

Other highlights of the 2010 Annual Meeting were:

 Welcoming remarks by Assemblywomen Ro Ann Destito, who is the Assembly sponsor of the RONY Trespass legislation;

 Update from John Rondinaro and Ray Hessinger of NYSDOT on the status of State rail freight grants;

 Update from Marie Corrado and Susan Andrews of NYSDOT on the State’s High Speed Rail efforts;  Upset from Evan Eisenhandler on the New York Operation Lifesaver Program; and

 Discussion on the truck size and weight issues by Jerry Vest, GWI and Mike Smith of the Finger Lakes Railway. A NEW RONY Committee was established to oversee this issue that is chaired by Mr. Vest and includes Messrs. Smith, McCreavy and Fesen.

FUTURE RONY STAFFING The RONY Board has appointed Daniel Plummer as the new RONY Executive Director. Dan has been involved in RONY efforts since it was established and will continue to be supported by Scott Wigger, RONY Legislative Counsel and Marge Wigger, Administrative Director. Plummer and Associates, LLC has recently moved closer to the State Capitol and is now located at 111 Washington Avenue, Suite 602, Albany, NY 12210. The RONY phone and fax numbers remain the same: Ph: (518) 463-2603 Fax: (518) 463-5991, as does the web site - www.railroadsofny.com

THE ECONOMIC SIGNIFICANCE OF THE RAIL FREIGHT INDUSTRY The rail freight industry in the U.S. employs over 180,000, generates nearly $265 billion in total annual economic activity and support 1.2 million jobs, according to the Association of American Railroads. In 2008, U.S. freight railroads paid $18 billion in wages and benefits to their employees, more than $8 billion in taxes and billions of dollars on supplies and services. Every $1 of investment in rail infrastructure generates another $3 in economic activity. According to AAR, each $1 billion of investment in rail infrastructure to expand capacity creates an estimated 20,000 jobs.

ELECTION RESULTS BRINGS CHANGE TO NEW YORK STATE Like much of the nation, New York political scene has changed with the November, 2010 elections. Democrat Andrew Cuomo easily won in the race for Governor, as current Democratic Governor David Patterson did not seek re-election. While the Democrats maintain a substantial majority in the State Assembly, the State Senate control has switched to a slim majority by the Republican party. Stay tuned as we learn more about who will head up NYSDOT and the Senate Transportation Committee.

3 RONY TESTIFIES AT ASSEMBLY HEARINGS ON TRANSPORT FUNDING RONY Executive Director Norm Schneider and Legislative Counsel Scott Wigger testified at a December 7th public hearing held by the Assembly Transportation Committee in Albany on the current two year transportation funding program. This program was adopted last Spring as part of the State budget and runs through March 31, 2012.

Among the key points made to Chair David Gantt and several other members of the Committee during the RONY testimony were the following:  Rail freight has been short-changed in both the past five year program and the current two year extension. RONY Legislative Counsel Scott Wigger specifically noted that applications have yet to be sought for rail and port funding that was suppose to have been allocated during the 2009-10 state fiscal year in accordance with a 2005 Memorandum of Understanding between the then Governor and Legislative Leaders. He urged that applications be immediately sought for these funds, which have already been appropriated in the current state budget.  Mr. Wigger also noted that the current two year program extension only provided $ 10 million per year for ports and rail – down from the $ 47 million per year provided in the previous program and only sufficient to meet 6% of the identified capital needs for rail freight. He noted that unlike other modes of transportation, the rail freight industry is expected to fund about 60% of these identified needs on its own, where as other modes are providing little if any such funding.  Both Messrs. Schneider and Wigger noted that rail freight was the most energy and environmentally friendly way to move goods and that RONY had previously provided to state officials an extensive list of “shovel ready” projects that would address critical infrastructure needs while creating desperately needed jobs. They urged State leaders to adequately address the capital needs of the rail freight industry.

PRAISE FROM “RAILROAD WEEK IN REVIEW” Roy Blanchard issues a weekly newsletter that provides information on what is happening in our industry for the northeast called “Railroad Week in Review”. The October 8th edition contained the following high praise for RONY:

“Railroads of New York, Inc. (RONY) is the most aggressive and best informed organization of its kind that I know of. The RONY mission is, “To provide a trade association for all freight railroads that operate in the State of New York to advocate for the rights and needs of railroads and their customers, as well as to encourage economic growth within the state of New York.” Not only does it represent best interests of NY’s freight railroads ( CSX, CN, CP, NS, and 30 short lines), but also RONY publishes a (quarterly) newsletter that can run to a dozen pages or more of useful updates and insights.”

For those interested in receiving this publication by email, contact Roy at (215) 985-1110, Cell: (215) 913-7740 or via his website: www.rblanchard.com

4 INCREASED TRUCK SIZE AND WEIGHT BAD FOR RAIL FREIGHT By Jerry Vest, new RONY VP and Chair of ASLRRA Truck Size and Weight Committee

Almost 20 years ago, federal surface transportation policy changed for the better. Enactment of the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA) meant the days of Congress simply passing a “highway bill” were over. Since then, Congress has expanded the multimodal focus of surface transportation public policy. An integrated approach allows for better policy decisions through the reauthorization process, with each mode recognized for its own strengths and role in ground transportation.

With the most recent surface transportation bill, SAFETEA-LU, up for renewal, discussions include the national limits on truck sizes and weights. This issue could have a dramatic and possibly unintended impact on the future health of ground transportation in the U.S. A handful of trucking companies and freight shippers are seeking to include in reauthorization higher federal highway truck weight and size limits. Their arguments are simply not good public policy.

First, proponents of heavier and larger trucks suggest that by allowing such trucks, fewer trucks will be on the roadways, producing less highway congestion, less pollution, and fewer accidents. These claims are not based on the properties of bigger trucks themselves, but on the idea that fewer total trucks will be required to move freight.

But as demonstrated by diversion studies done in 2007 by Carl Martland of the Massachusetts Institute of Technology and in 2009 by TTX Co., a tremendous diversion of freight from rail to truck would occur with increased federal weight and size limits. According to the Martland study, allowing a 97,000-pound national weight limit would divert 44% of all merchandise traffic handled by short line and regional railroads to trucks. The TTX study found that larger trucks would divert almost 25% of all carload and intermodal rail traffic (excluding coal and ores), resulting in 330 billion new truck ton-miles every year. “Bigger but fewer” trucks also fails from a historical perspective: Following every national truck weight limit increase in modern history, more, not fewer, trucks have appeared on our highways.

Second, advocates of heavier and larger trucks imply highways will see very little impact. One proposal calls for a third rear trailer axle for tractor-trailers carrying 97,000 pounds, claiming this will result in less pavement damage than a similar 80,000-pound truck with a standard rear tandem trailer. Pavement experts appear to be divided on this, but one can ask: If another trailer axle reduces pavement wear, why don’t trucking companies promoting this view simply add another axle to their 80,000-pound trailers immediately? But there is no doubt that heavier trucks will exacerbate deterioration of roadway bridges, problematic for states facing significant inventories of roadway bridges rated as “substandard.” Heavier trucks will simply make this problem worse.

Third, many highway safety experts strongly disagree with the idea that bigger trucks are as safe as current trucks. Both the International Brotherhood of Teamsters and the Owner-Operator Independent Drivers Association have issued warnings of the safety hazards presented by heavier trucks. Law enforcement agencies across the country, including the National Troopers Coalition

5 and the National Sheriffs’ Association, have formally declared their opposition to bigger trucks. And when higher federal CAFE standards result in smaller and lighter passenger vehicles, heavier trucks sharing public highways ignores the laws of physics, placing all of us driving on the national highway network at a higher level of risk of harm in a truck-auto accident.

Finally, federal officials should not overlook the negative impact bigger trucks would have on our multimodal system. The Martland and TTX diversion studies make clear that a substantial reduction in freight rail shipments would occur. This has been confirmed at the state level, when increases in weight allowances on state roads created an almost immediate loss of rail traffic for some short line railroads. The Government Accountability Office understands this, quoting USDOT statistics in stating, “[L]arger trucks weighing over 100,000 pounds pay only 40% of their costs. From an economic standpoint, this relationship between revenue and cost distorts the competitive environment by making it appear that heavier trucks are a less expensive shipping method than they actually are and puts other modes, such as rail and maritime, at a disadvantage.”

This is not simply a “railroader vs. trucker” fight. Most people appreciate the role trucking plays in our national economy. But favoring a handful of shippers and trucking companies with cheaper rates or lower costs is not good public policy. Continuing, without change, the current national weight and size limits on all federal highways is the right policy decision, one that all of us need to support.

Jerry Vest is Vice President, Government and Industry Affairs for Genesee & Wyoming Inc.

LT. GOVERNOR ISSUES REPORT ON TRANSPORTATION FINANCE ISSUES New York’s outgoing Lt. Governor Richard Ravitch recently issued a report outlining the problems facing the transportation infrastructure system in NYS and possible measures that can be taken in response. The report gave a general overview of the entire transportation network without detailing much about the specific modes and their individual needs. Some of the key points he made were as follows:  Long-term bonds are the proper financing mechanism for capital investment because they allow for the amortization of such investment over the years of the lives of the people who will benefit from the projects;  More than 73 million tons of freight move on 3,500 miles of railroads in NYS, with more than 150 million tons of freight passing through the state’s ports;  NYS is presently unable to fully fund the proposed multi-year DOT and MTA capital plans;  Last year, a $26 billion, five-year DOT capital plan was rejected because of insufficient resources. That plan was short by at least $8 billion, or approximately $1.7 billion per year;  As a result, instead of spending $5-$6 billion annually on its system over the next five years, NYS is carrying out a two-year, $7 billion capital plan, which significantly slows investment in the DOT system. This two-year plan will be funded with $3.1 billion in federal aid, $438 million in funds remaining from the 2005 Bond Act and $3.3 billion in state funds expected to come from legislative appropriations and dedicated revenues for transportation;

6  NYS must focus more on projects that advance multiple policy goals – economic development, sustainability and urban renewal;  In order to maintain orderly freight and passenger traffic flows in and around NYC, replacement of the Kosciusko Bridge is critical  NYS should consider easing environmental reviews for projects with a demonstrably positive environmental impact, such as transit and rail.

REGIONAL RAIL – NS REACH TRACK AGREEMENT IN NEW YORK Regional Rail L.L.C. recently entered into an agreement with Norfolk Southern Corp. to lease and operate 36 miles of track in New York, known as the Campbell Hall Cluster for its Middletown and New Jersey Railroad L.L.C. (M&NJ) subsidiary. The deal includes associated trackage rights. M&NJ will operate the Hudson secondary from Campbell Hall, N.Y., to a connection with the New York, Susquehanna and Western Railway Corp. in Warwick, N.Y.; the Walden secondary from Campbell Hall to Walden; and the Maybrook industrial track from Campbell Hall to Montgomery, N.Y.

The Campbell Hall Cluster serves a diverse customer base, and the lines are well positioned to serve expanding warehouse and distribution operations in the area, Regional Rail officials said in a prepared statement. “Our strong relationship and history of carload growth with NS at the M&NJ and at our other NS-served lines was a key to consummating this deal,” said Bob Parker, President and Chief Executive Officer of Regional Rail, which also owns and operates the East Penn Railroad L.L.C. in eastern Pennsylvania and Delaware.

TIGER II GRANT REQUESTS TOTAL 32 TIMES THE AVAILABLE FUNDS The second round of applications for Transportation Investment Generating Economic Recovery (TIGER) grants, like the first round, generated much more demand than supply. TIGER II requests numbered nearly 1,000 applications for a total of $19 billion, and for which $600 million in funding is available. Last February, TIGER I requests numbered nearly 1,500 applications – so many that USDOT had to abandon plans to post them online – for a total of $60 billion, and for which $1.5 billion was available.

Concerning the TIGER II funding, the $600 million is for capital investment in surface transportation projects. Up to $35 million can be used for planning grants. A number of the applications submitted are for railroad improvement projects, including those from six states in support of Norfolk Southern’s Crescent Corridor initiative. NYSDOT applied for over $ 75 million in TIGER II grants, including funding for the replacement of NS’s Portageville Bridge and a technology enhancement of the State’s truck weight enforcement program.

On October 20, USDOT Secretary Ray LaHood announced the selection of forty-two capital construction projects and 33 planning projects in 40 states that share nearly $600 million for major infrastructure projects ranging from highways and bridges to transit, rail and ports. No rail freight projects from New York state were selected, but that state did receive $ 28.6 million (three highway, transit and trail project and $ 16.5 million for a new passenger rail station in Niagara Falls, NY).

7 Nationwide, the following grants went to rail freight projects:

* Class 1: Tower 55 improvements (BNSF and UP junction in Fort Worth, TX): $34M * Class II and III  Watco Company’s South Kansas and Oklahoma Railroad and Stillwater Central Railroad projects in Kansas and Oklahoma: $10.2M  Nebraska Northwestern Railroad upgrade in Nebraska: $4.9M * State-owned lines:  Rebuild branch lines operated by Dakota Southern Railroad from Mitchell to Chamberlain in South Dakota: $16M  Repair Montreal, Maine and Atlantic Railway lines in Maine: $10.5M  Improve SEDA-Council of Governments Joint Rail Authority lines operated by North Shore Railroads in Pennsylvania: $10M * Port Access:  Port of Miami/RailAmerica-Florida East Coast Railway project in Florida: $2.8M  Port of Los Angeles West Basin Rail yard served by BNSF and UP in California: $16M  Port of Coos Bay Rail Link project in Oregon: $13.5M  Port of Vancouver USA served by BNSF in Washington State: $10M

BROOKHAVEN, LI RAIL TERMINAL GROUND BREAKING US Rail Corporation and the Brookhaven Rail Terminal held a groundbreaking on the new rail terminal on October 12. The new facility is located at 205 Sills Road in Yaphank in Suffolk County, NY. The new facility is located just off of Exit 66 of the Long Island Expressway.

The more than $26 million terminal is being developed through a joint venture between Landbridge Intermodal, D.A. Collins Cos., Pratt Brothers Construction, Watral & Sons and US Rail. The partners established Brookhaven Rail Terminal to create a freight-rail facility for construction aggregates and building materials offering transloading, logistics, equipment and transportation services. The company selected US Rail — which operates two short lines in Ohio and one in Indiana — to contract and operate the terminal. The facility will be built on a 28-acre site within the Brookhaven Empire Zone.

A Long Island Transportation Plan 2000 study shows there is a “significant market” for freight rail in central Long Island, according to Brookhaven Rail Terminal and US Rail officials. “This facility will benefit the environment and our air quality by taking thousands of trucks off our roads and bridges, as well as reduce the cost of doing business because rail freight is approximately half the cost of truck,” they said in a ceremony announcement.

LIBERTY CORRIDOR FREIGHTWAY OPENED On Friday, October 8th, CSX Transportation, the Port Authority of New York and New Jersey (PANYNJ) and state of New Jersey marked the opening of the Liberty Corridor Freightway. Funded through a public-private partnership between CSXT and the state, the freightway will help expedite cargo traffic moving between inland markets and the Port of New York and New Jersey by increasing train capacity and improving service levels, according to CSXT.

8 The $24 million project called for raising the vertical clearances of two tunnels on a Conrail route between the port and CSXT mainline to accommodate the height of industry standard container trains. The freightway “paves the way for growth by providing improved access to the port,” CSXT officials said in an opening ceremony announcement. The public-private partners held the ceremony at CSXT’s North Bergen intermodal terminal. Speakers included CSX Corp. Executive Vice President of Sales and Marketing Clarence Gooden; PANYNJ Director of Port Commerce Richard Larrabee; New Jersey Department of Transportation Commissioner James Simpson; and Sen. Robert Menendez (D-N.J.)

New York-New Jersey's main North Atlantic competitor for intermodal rail traffic to the Midwest is the Port of Virginia, which hopes to benefit from Norfolk Southern's recent opening of the Heartland Corridor, a stacktrain route from Norfolk to Columbus, Ohio. CSX is developing its rival National Gateway from the Mid-Atlantic to the Midwest. CSX officials said the enlarged tunnels will allow "fully profiled" trains with stacked high-cube containers with nine-foot, six- inch heights, that will connect with the $175 million intermodal hub CSX plans to open early next year in Northwest Ohio. The Ohio terminal will act as an airline-style hub that will shuffle containers to feeder routes throughout the Ohio Valley and Midwest.

Rick Larrabee, New York-New Jersey’s Director of Port Commerce, said intermodal rail now accounts for 13 percent of port traffic. He said the goal is to push that over 20 to 25 percent. During the last decade the PANYNJ has invested $450 million in its ExpressRail on-dock rail terminals. He said an additional $100 million has been authorized and that further investment is planned.

NS BREAKS GROUND FOR NEW PA INTERMODAL TERMINAL The Norfolk Southern railway is set to begin construction of a $95 million intermodal facility in Greencastle, PA., located about 20 miles north of Hagerstown, MD. The 200-acre facility will serve as a hub for traffic moving between the gulf coast and the northeast.

The Greencastle facility will become part of the railroad's multi-state Crescent Corridor program, creating a high-capacity, 2,500-mile intermodal route spanning from New Jersey to Louisiana that touches 26 percent of the nation's population and 30 percent of the nation's manufacturing output. It provides the shortest intermodal double-stack route between the south and the northeast. When fully operational, it will handle more rail freight traffic faster and more reliably, and it will produce these estimated annual benefits: * 1.3 million long-haul trucks diverted from interstates highways; * $141 million in highway accident avoidance savings; * 1.8 million tons in CO2 air pollution reduction; * $565 million in highway congestion savings; * $262 million in highway maintenance savings due to truck diversion; and * 163 million gallons in energy fuel savings to motorists.

The terminal will utilize the latest in gate and terminal automation technology, which shortens the waiting time for trucks entering the terminal, thereby reducing exhaust emissions and improving truck driver productivity. Four daily intermodal trains will serve the terminal. It will create the

9 capacity to handle more than 85,000 containers and trailers annually, the railroad says. It is expected to open in 2012. Attending the October groundbreaking ceremony were Norfolk Southern CEO Wick Moorman, Pennsylvania Gov., Ed Rendell, Federal Railroad Administration Deputy Administrator, Karen Rae, US Rep. Bill Shuster, and other state and local dignitaries.

NEW NYS ECONOMIC DEVELOPMENT WEB SITE New York Governor Paterson and the Empire State Development Corporation announced in October the creation of a new website, www.nyfirst.ny.gov that is designed to serve as a centralized economic development resource to show companies all of the benefits available to anyone who does business in NYS. It is geared towards companies expanding in or choosing to locate in NYS and it represents the economic development resources of 35 NYS agencies. Some of the features of the site include:  A catalog of the State’s full complement of business incentives regardless of administering agency;  Eliminates the need for an interested business stakeholder to view multiple agency websites;  Allows users to search by type of assistance, size of business, MWBE status, administering agency and more; and,  Provides an “Experts on Demand” guarantee – Any email or phone call will receive a response from ESDC staff within 24 hours

RONY MEMBERSHIP INCREASES DESPITE RECESSION Railroads of New York, Inc, (RONY) currently has 57 Members – up from 15 in 2003, 32 at the end of 2004, and 50 at the end of 2007.  During 2010, the number of Railroad Members remained steady at 23, with the Massena Terminal Railroad replacing the NY & Greenwood Lakes Railway.  Associate and Contributing Membership increased from 31 to 34 even though the recession forced some companies to temporarily cut back during these difficult times. New Associate Members include Stantec Consulting and The Railroads Associates Corp. (TRAC) while new Contributing Members include Hardestry and Hanover, omega Rail Management, Pictometry and TVGA.

RONY Railroad Members are urged to use these key supporters of RONY whenever possible.

EXTENSION OF SHORT-LINE TAX CREDIT EFFORTS CONTINUE The American Short Line and Regional Railroad Association (ASLRRA) recently launched a “broad-based effort” to include the short-line tax credit extension in tax legislation that will be considered by Congress during a lame-duck session to run through year’s end. The 45G tax credit — which expired on Dec. 31, 2009, and has not yet been extended for calendar year 2010 — currently is packaged with other expired or expiring tax credits in a tax extenders bill. The measure passed the House twice and Senate once earlier this year, but “never in identical forms,” according to the ASLRRA. If passed as part of the tax extenders bill, the short-line tax credit would likely be continued through Dec. 31, 2010 and perhaps 2011.

10 Initially enacted in January 2005, the tax credit enables regional and short line railroads to claim a tax credit of 50 cents for every dollar spent on infrastructure improvements, up to a cap of $3,500 per mile of owned or leased track. Efforts to extend the short-line railroads’ infrastructure- improvement tax credit beyond year’s end marked a milestone earlier this year when the number of co-sponsors for the Short Line Rehabilitation Tax Credit bill (H.R. 1132/S. 461) reached 240 in the House and 51 in the Senate to represent a majority of those respective chambers.

There is hope that recent discussions between President Obama and Republican Congressional leaders will lead to a mechanism before the end of this year that will extend this vital tax credit for up to two years. Stay tuned.

NEW YORK RECEIVES FEDERAL FUNDING FOR PASSENGER RAIL Recently, New York has received almost $ 275 million from the federal government to improve rail passenger service in the Empire and Adirondack Corridors of New York State, including over $ 180 million from the new federal high speed rail program. The State received an initial $ 151 million in high speed rail grants plus an additional $ 28.5 million in October and $ 7.3 million in reallocated funding from Ohio and Wisconsin in December. In Wisconsin, the scrapped HSR plans have spurred train manufacturer Talgo to announce the closure of its Milwaukee plant, but the company still looks to make trains for states that received a portion of the funds from Ohio and Wisconsin. Governor-elect Andrew Cuomo had requested that USDOT reallocate funds from those states that are choosing not to pursue high speed rail as a result of the election of new Governor during the November election

These federal passenger rail funds are being directed at making capital improvements along current Amtrak service corridors, such as adding a second track between Rensselaer and Schenectady and a new high speed segment in the Rochester area. Additionally, the State has received TIGER II funding for development of the new Moynihan Penn Station in New York City and updated train stations in Niagara Falls and Schenectady by rehabilitating existing facilities. For more details, visit the NYSDOT web site on high speed rail.

RONY INVITED TO BE PART OF NYS EMPIRE HIGH SPEED RAIL STUDY New York officials believe that high speed passenger rail is the future of transportation in New York State and the nation. “The High Speed Rail Empire Corridor Project is good for New York because it will bring jobs to our State, help protect our environment and stimulate economic growth by attracting business and travel to major cities connected by the rail system. The first step in moving forward with our vision for high speed rail in New York State is to conduct a Tier 1 Environmental Impact Statement (EIS) to examine the options for introducing passenger train speeds of at least 110 mph between Schenectady and Niagara Falls.” And RONY has been asked and agreed to participate in this effort.

High speed passenger rail is expected to improve reliability, decrease travel times and increase train frequencies from New York City to Niagara Falls. New York’s transportation leaders are making important decisions regarding what high speed rail will ultimately look like in our State and will rely on participation and feedback from the public, high speed rail partners including Amtrak, CSX Transportation, Metro North and Canadian Pacific Railways and many interested

11 groups along the corridor. The resulting strategic plan will help spark statewide economic development by combining our strong freight system with a competitive passenger system that delivers fast, efficient, environmentally friendly and reliable service.

New York State Department of Transportation (NYSDOT) and the Federal Railroad Administration (FRA) will examine and evaluate potential improvements and projects to intercity passenger rail service within the corridor. It proceeds north from New York through Albany, turns west to Schenectady, then passes through Utica, Syracuse, Rochester, Buffalo and other cities before terminating at Niagara Falls, a distance of 463 miles. During the two-year project there will be many opportunities for corridor residents, transit users, businesses, taxpayers and other partners to learn about high speed rail, and identify local needs and concerns regarding the potential expansion of high speed rail.

CSX EMPHASING GREEN BENEFITS When it comes to CSX and other railroads, emphasizing the green benefits helps shareholders, customers and the communities it serves. Railroads are already four times more fuel efficient than trucks, according to an independent study for the Federal Railroad Administration. According to the Association of American Railroads, a train traveling coast-to-coast in the United States will use about seven gallons’ worth of fuel per ton of freight hauled. The same study states that a truck will use an estimated 28 gallons of fuel per ton of freight hauled for the same trip. Meanwhile, railroads have doubled their freight volume since 1980 but their fuel consumption has remained virtually the same.

Emphasizing clean air, sustainable infrastructure and fuel efficiency, CSX has helped the railroad industry become the most environmentally responsible way to move freight in the United States. For clean air, CSX has introduced ultra-low emission Generator Set (GenSet) locomotives.

The GeneSet locomotive is equipped with two or three small, EPA-certified, ultra-clean diesel generators that switch on and off depending on how much power is needed instead of one large diesel that is always running. These new, environmentally-responsible locomotives reduce nitrous oxide and particulate matter emissions by 80 percent and carbon dioxide emissions by 25 percent.

To further encourage businesses to ship their freight using CSX — and thus lower CO2 emissions — the company has developed an online Carbon Calculator. This online tool allows businesses to input the weight of their freight and the distance it will be traveling and then compares the emission results to that of a similar trip completed by truck.

Railroad infrastructures need investing to remain competitive in the global economy as well as to remain an environmentally responsible method of transportation over land. To that end, CSX developed the National Gateway project. The aim of the project is to improve the flow of freight between the Mid-Atlantic and the Midwest by upgrading tracks, equipment and facilities, and by raising bridges, increasing tunnel clearances and building terminals along existing rail. Not only does this project help the rail industry, but these improvements can reduce transportation-related emissions by 20 million tons while also alleviating congestion on roads and highways.

12 Ultimately, the most important thing for rail to do is maintain its fuel efficiency edge over other forms of land transportation. CSX has invested $1.5 billion over the past 10 years to improve its fuel efficiency. In addition, the company has trained its engineers with simulators to improve fuel-awareness handling, as well as recording their engineers’ driving to continually train and improve its workers. The company has also worked to reduce idling time by automatically shutting down the locomotive when not in use and automatically starting it when needed. In addition to these new technologies, engineers are also trained in the proper ways to shut down a locomotive to reduce unnecessary or accidental idling.

Also, CSX was the first railroad to join the Environmental Protection Agency’s (EPA) Climate Leaders Program. This voluntary initiative allows businesses to measure and reduce greenhouse gas emissions. CSX pledged to reduce its greenhouse gas emissions in the U.S. by eight percent per revenue ton mile from 2006 to 2011. This commitment would reduce CO2 emissions by approximately 2.4 million tons – the equivalent of taking more than 440,000 cars off the road each year. Through its emphasis on clean air, sustainable infrastructure, fuel efficiency and efforts at industrial leadership, CSX remains one of the nation’s most environmentally- responsible companies.

UPDATE ON STATE LEGISLATIVE SESSION RONY staff again closely monitored rail related State legislative matters that surfaced during the 2010 legislative session. Plummer & Associates staff, consisting of CEO Dan Plummer and Scott and Marge Wigger, continued to coordinate RONY administrative matters as well as research and track legislative issues, including attending legislative hearings and committee meetings. In general, the legislative session was quite busy with a number of bills being proposed during this election year that would be harmful to the rail freight industry, including those dealing with the transport of municipal solid waste and construction debris. Fortunately, RONY staff was successful in helping to ensure that these bills were not enacted during 2010. Many are likely to resurface during 2011, however. Visit www.railroadsofny.com and click on Legislative Update for more specific information. This site is updated whenever there is a significant change in the status of the pending legislation.

RONY staff is distributing a draft work plan to the membership for review, comment and finalization early in 2011. This plan will guide the association’s efforts for the coming year.

OTHER STATES FUNDING RAIL FREIGHT PROJECTS The AASHTO Standing Committee on Rail Transportation (SCORT) has set up a new web site that begins to list the rail funding programs on a state-by-state basis. The site is still being developed but it does provide some useful information even now. The address for the web site is as follows: http://rail.transportation.org/Pages/rail_success.aspx

During the past quarter, several States have announced plans to improve rail freight facilities in order to address key transportation needs as well to spur economic growth and improve their environment. These include:

13  Pennsylvania: Governor Rendell recently announced that it would provide $32.5 million to fund 38 freight rail projects in the state. More than two-thirds of the funding, or $23.9 million, will come from the Pennsylvania 2010-2011 Rail Capital Budget/Transportation Assistance Program, which is funded through state capital bond dollars approved in the general fund budget. The remainder will come from the state’s 2011-2012 Rail Freight Assistance Program. Both grant programs are administered by PennDOT’s Bureau of Rail Freight. Grant awards include:  $3.9 million to the SEDA-COG regional agency for facility and track construction projects at five North Shore Railroad points to meet Marcellus Shale expansion demands;  $3 million to the Buffalo & Pittsburgh Railroad to upgrade and rebuild wood trestles, replace mud sills with pilings and improve bridge deck beams to accommodate 263,000-pound freight cars;  $1.8 million to the Allegheny Valley Railroad for the second phase of its Glenwood Yard project, including track reconstruction, and rail and tie replacements on two bridge decks;  $1.4 million to Allentown Economic Development Corporation to restore a branch line and reconnect an R.J. Corman Railroad Group line;  $1.3 million to the Pennsylvania Northeast Regional Railroad Authority to acquire remaining mainline track for existing traffic and new rail traffic associated with the Marcellus Shale;  $1 million to the Strasburg Railroad to construct and rehabilitate track, and to rehab a rail bridge;  $700,000 to Wellsboro & Corning Railway to reconstruct track and turnouts, install ties and surface track;  $378,350 to the Western New York & Pennsylvania Railroad to install new ties, reconstruct rail through three grade crossings and realign a curve to facilitate higher train speed;  $308,000 to York Railway to upgrade tracks, realign a siding and replace two crossings on its mainline; and  $301,000 to West Shore Railroad to rehabilitate a rail bridge, including new ties and deck installation.  Massachusetts: The soon-to-be completed expansions to the CSX railroad yards in West Springfield put the region in an enviable business position, according to a logistics expert from a Dallas-based real estate company Grubb & Ellis. Mr. Feemster said business people all around the world need to prepare for a future where "transportation is king" and reducing the cost of hauling freight and the carbon footprint of transportation is of paramount importance. That means keeping freight moving along as much of its journey as possible using the cheapest and most efficient means possible: ocean going ships and double stacked rail containers. CSX plans to complete $10 million in improvements to the West Springfield rail yards by the end of this year. The work includes new cranes and 3,000 new feet of track. Double-stacked freight trains will be made possible beginning in 2012 following work to raise bridges and lower rail beds along rail lines west of Worcester.

14  Massachusetts: CSX has approved increases in funding and other commitments for the rail giant’s plans to expand its freight yard between Shrewsbury and Franklin streets. When CSX originally unveil its plans to expand the overall size of its current freight operations from 58 acres to 79 acres, it proposed investing about $100 million on the project. But in response to concerns raised by city officials and neighborhood residents, CSX reached a tentative agreement with state and city officials on a $23 million traffic improvement and neighborhood mitigation package, boosting its total investment in the city to nearly $125 million. Last month, the City Council approved a series of zoning and street-layout changes needed for the CSX expansion project. It included changing the zoning for roughly 3 acres along the CSX railroad tracks and another 7.5 acres at 15 and 17 Putnam Lane, from residential-limited to manufacturing-general. That change is meant to formally recognize that the track and a freight yard already exist in that area and allow for appropriate expansion of that use. With CSX moving its freight operations out of Beacon Park yards in Boston, it is repositioning its freight activity at existing yards in Central and Western Massachusetts. CSX wants to make Worcester its new freight hub for New England. The private-public partnership between the state and CSX will also open up the rail line between Worcester and Boston to more commuter trains, with an eventual goal of 20 more trains per day.  Vermont: The State received a $ 50 million federal grant to upgrade railroad tracks hosting freight and passenger trains. Track and bridge work will likely shave an hour off Amtrak's Vermonter service and permit heavier freight rail service, as well. New England Central Railroad owns the tracks and is pitching in $20 million to the project.  Ohio: The Public Utilities Commission of Ohio (PUCO) recently approved construction authorization from the Ohio Rail Development Commission (ORDC) directing Norfolk Southern Railway and the Wheeling & Lake Erie Railway Co. (W&LE) to install flashing lights and gates at grade crossings in four counties. Funding for the projects will be covered by federal dollars. W&LE will be responsible for completing work by March 2012 and NS, by November 2012. PUCO also approved an agreement with ORDC, NS and the city of Toledo to close one crossing, and install lights and gates at another.  Ohio: The National Lime & Stone Co., a Findlay, Ohio-based company, expects to be up and running within a few weeks at a new Erie location -- just as soon as it finishes building a new railroad. The company, whose 300 employees mine and process limestone at several quarries in Ohio, maintains eight distribution rail yards throughout Ohio. Company officials expect within a month to complete construction of a new one in Pennsylvania, along West 16th Street just east of Interstate 79 in Erie. National Lime & Stone is in the final stages of installing a new 5,400-foot rail line on property leased from CSX. That new section of rail line, being built with a combination of construction equipment and the swing of heavy hammers, can be seen taking shape from Interstate 79. A cleared area adjacent to the new tracks will be used to unload 60-car trains and to stockpile limestone, he said. The company expects to hire a handful of employees to weigh and unload limestone, a common building block for roads and parking lots. Jake Rouch, Vice President of Economic Development for the Erie Regional Chamber and Growth Partnership, called the project good news. The new facility is being completed as local groups, led by the Economic Development Corporation of Erie County, move ahead with plans to develop the Erie Inland Port project, a proposed intermodal hub and logistics

15 park that would link the region's ports, railroads and highways to move and distribute goods.  Illinois: Governor Pat Quinn announced the state will provide $79 million for projects designed to reduce rail and roadway congestion in the Galesburg area. To begin next year, a grade separation project calls for building one underpass and two bridges, and closing eight grade crossings in Galesburg. The $34 million project will create 440 jobs and support Galesburg’s quiet zone initiative, which aims to decrease an estimated 3,400 times daily that trains sound their horns in the area, said Quinn in a prepared statement. In addition, a $45 million rail congestion mitigation project slated for 2011 involves the construction and extension of a BNSF Railway Co. mainline and two new staging tracks to separate freight and Amtrak train traffic. Galesburg is a major regional rail hub where seven major rail lines converge, providing direct rail links to southern Illinois and Chicago, as well as the Pacific Northwest, California and Texas.  Illinois: The Illinois Commerce Commission (ICC) recently approved the demolition and reconstruction of a bridge over CN/Illinois Central Railroad track near Bluford. Work is scheduled for completion by December 2012.The state’s Grade Crossing Protection Fund (GCPF) will cover 60 percent of the project’s $761,000 cost. CN/IC, Jefferson County and the Webber Township Road District will pay the remainder. The ICC also granted approval for BNSF Railway Co. to renew grade crossing surfaces near Litchfield, Girard, Adair and Gladstone. Work is slated for completion in September 2011.The GCPF will cover the entire $265,916 cost. BNSF will be responsible for future maintenance expenses. Finally, the ICC granted approval for upgrades to a Norfolk Southern Railway crossing near Homer. To be completed in 12 to 18 months, the work calls for installing new automatic flashing light signals and gates, and improving roadway approaches. The GCPF will cover 95 percent of automatic warning device costs estimated at $530,906 and 100 percent of highway approach improvement costs estimated at $148,725. NS will be responsible for all remaining installation costs and future operating and maintenance expenses associated with the warning devices.  Indiana: A coalition of labor and environmental groups called for more investment in freight railroads, including projects such as the $71.4 million Indiana Gateway, as the best means of ending U.S. dependence on foreign oil and creating jobs. The report offered analysis showing 7,800 green jobs are created for every $1 billion spent on improving freight rail infrastructure. Total job creation can reach 26,000 jobs when spinoff and support jobs are counted. The report basically characterizes all freight rail jobs as green because freight rail has unrivaled fuel efficiency when it comes to moving bulk goods. A train can move 1 ton of freight 480 miles on just one gallon of fuel, according to the report. A truck uses about four times as much fuel to do the same work. The BlueGreen Alliance, made up of labor unions and environmental groups, is pushing for a federal tax credit for freight rail projects to spur an increase in about $15 billion per year spent on such projects in the United States. The report also touts public-private partnerships between freight and passenger railroads. One such project is the Indiana Gateway project that won $71.4 million in federal high-speed rail stimulus funds earlier this year. That project will alleviate rail bottlenecks at Porter Junction in Porter all the way to the Illinois state line on tracks owned by Norfolk Southern Corp. That rail corridor is one of the most delay-prone in the country, with 87 freight trains and 14 Amtrak trains per day jockeying

16 to get into and out of Chicago. The Indiana Department of Transportation hopes to have detailed agreements on the project worked out between Amtrak, Norfolk Southern and the Federal Railroad Administration by the end of the year, according to Jim Pinkerton, INDOT LaPorte District spokesman. Design work then would take place in the first quarter of 2011 and construction could begin soon after.  Kentucky, Tennessee and West Virginia: The Kentucky Transportation Cabinet and USDOT have recently signed a grant agreement to begin on a stimulus project to upgrade five freight short line railroads over three states. The R. J. Corman Railroad Group, which owns the short lines, said the Appalachian Regional Short Line Project will cost $22 million to rehabilitate “hundreds of miles on five unconnected short line railroads in Kentucky, Tennessee and West Virginia,” that serve about 125 shippers. USDOT is kicking in nearly $17.6 million in all from a discretionary grants account for work of special national or regional importance, which was set up in the 2009 American Recovery and Reinvestment Act. Corman is putting more than $4 million into the project and Kentucky $200,000. The DOT reached similar accords with West Virginia, which will receive $1.77 million, and Tennessee, which is receiving $2.8 million under the plan. Corman said upgrading the freight rail network would make the short line shippers more competitive, draw more freight onto rail from roads and thereby reduce state highway maintenance needs, and help improve fuel efficiency for freight moves in the region. The construction will include work on bridges and tunnels, upgrades to roadway track crossings, plus track and crosstie replacement. It is also expected to spur freight shippers “to shift the transport of hazardous commodities and chemicals from truck to rail,” the USDOT said. The department said the money will also benefit several economically distressed counties in Appalachia. Transportation Secretary Ray LaHood said it is an example of the Recovery Act “helping to create jobs, reinvigorate the economy and build a world-class transportation network that will allow businesses to grow, which is particularly important in hard-hit areas.  North Carolina: The Department of Transportation’s Rail Division recently upgraded three grade crossings with warning devices to boost safety. The division revised crossing signals and installed gates at CSX Transportation crossings in Winterville and near St. Pauls, and an Aberdeen Carolina and Western Railroad crossing in Oakboro. Federal dollars covered 90 percent of project costs, which totaled about $540,000. Maintenance funding will be divided equally between the state and railroads. The projects are part of a statewide program aimed at adding or improving signals and gates at public crossings. Automatic warning devices now have been installed at more than 2,400 of North Carolina’s 4,100 public crossings.  North Carolina: The North Carolina Railroad Co. (NCRR) plans to complete a $4 million tie replacement project between New Bern and Goldsboro as part of ongoing maintenance along its 317-mile corridor. A Norfolk Southern Corp. “super gang” will replace 1,000 to 1,500 wood ties and surface track, including tamping the ties, leveling track and banking curves. NS is responsible for maintaining the line and is funding the project, which will enable trains to travel at a normal, safe speed of 40 mph, NCRR officials said in a prepared statement. NCRR owns and manages the corridor between Morehead City and Charlotte that’s used by 70 freight and eight passenger trains daily. Meanwhile, the North Carolina Department of Transportation’s (NCDOT) Rail Division

17 recently completed safety improvements at six grade crossings. The division revised crossing signals and installed gates at CSX Transportation crossings in Lincolnton, Iron Station, Green Mountain and Glenwood; an Aberdeen Carolina and Western Railroad crossing in Aquadale; and a Carolina Coastal Railway crossing in Stantonsburg. Costing more than $1 million, the projects will be 90 percent-funded by federal dollars, with NCDOT or the local governments covering the remainder. Maintenance funding will be divided equally between the municipalities and railroads.  Washington: The State Department of Transportation recently signed an agreement to release about $2 million in state funds to the Port of Moses Lake to begin construction on Segment 2 of the Northern Columbia Basin Railroad project. The project calls for extending existing Columbia Basin Railroad Co. tracks in Moses Lake by three miles to industrial property and businesses located on the east side of the port’s industrial park. The line would provide a rail link to customers located at the Grant County International Airport. Excavation and construction work is scheduled to begin soon and be completed by June 2012.  Wisconsin: The State of Wisconsin celebrated its symbiotic relationship with railroads in a new Freight Rail Week, in October. Freight railroads move some 160 million tons of cargo in the state each year. "When the rails [are] doing well, typically that means everyone else is doing well," said Jason Serck, Planning and Port Director in Superior, Wis. Nowhere in Wisconsin are rail lines more appreciated then in Superior. The symbiotic relationship between the port and railroads is just as vibrant as it was in the heyday of the rail industry. For example over 48–hundred train cars carrying 450– thousand metric tons of grain arrived by train in Superior to be loaded on to ships; and that's just in September. Not only do railroads serve the shipping industry, but they also serve as an economic driver. In Superior more than three hundred people are employed by four railroad companies. But the economic benefits don't stop there. Director Serck noted that railroads are: "...Just a huge shot in the arm, their interaction with our larger and smaller companies like Amsoil, Murphy Oil, it's just a snowball effect..."

GOVERNOR ISSUES HYDRAULIC FRACTURING EXECUTIVE ORDER Governor David A. Paterson has just issued an Executive Order requiring the NYS Department of Environmental Conservation (DEC) to intensify its analysis of high-volume, horizontal hydraulic fracturing, stating that no permits shall be issued for such drilling until July 1, 2011, at the earliest, if at all. In his press release announcing this decision, it was stated:

"The Governor emphasized that there must be absolutely no doubt that high-volume “fracking” is safe. The enormous revenues that could eventuate from such drilling would not be worth the cost of serious environmental harm. All available evidence, including data from other states, will be examined, the Governor said. "The Governor vetoed legislation that would have placed a moratorium on high-volume, horizontal hydraulic drilling and more conventional vertical drilling. The Governor's order obviates the need for a moratorium on high-volume fracking. However, vertical drilling has been a fact in this State for 40 years without demonstrable environmental damage. Permitting for such drilling will continue unless the DEC's comprehensive review requires it to be stopped."

18 ANNUAL RONY RAIL DAY WILL BE HELD MARCH 2, 2011 RONY’s RONY Rail Day in Albany will be held on Wednesday, March 2 in 2011. It is expected that Rail Day efforts will be preceded by a brief RONY Board Meeting and then the traditional meetings with key state officials similar to the process used in 2010.

In January after RONY staff review the proposed Governor’s Executive Budget and the updated RONY Work plan is completed, it will then be decided what issues should be stressed during these visits. Talking points and related material will again be developed by the staff to facilitate this effort. Check the RONY web page under Latest News – Board Meetings for further information as it is released.

OTHER IMPORTANT RAIL FREIGHT EVENTS IN 2011  January 5-8, 2011 – National Railroad Construction & Maintenance Association (NRC) Conference, Fort Lauderdale, FL  February 27 – March 1, 2011 – AAR’s Railroad Superintendents Winter conference, Jacksonville, FL  March 2, 2011- RONY board Meeting and Rail Day, Albany, NY  March 13 - 15, 2011 – AASHTO SCORT Meeting, Washington, DC  March 24, 2011 – National Rail Day, Washington, DC  March 28-29, 2011 – NITL Freight Transportation Policy Forum, Arlington, VA  April 19-21, NE Assoc. of Rail Shippers (NEARS) meeting, Cromwell, CT  April 30- May 3, 2011 - American Short Line and Regional Railroad Association’s Annual Convention, San Antonio, TX  May 16-22, 2011 – National Transportation Week  May 25, 2011 – RONY Board Meeting, TBA  May 25-27, 2011 – National American Rail Shippers Assn Meeting, San Francisco, CA  September 14, 2011 – RONY Board Meeting, TBA  September, 2011 TBD – AASHTO SCORT Meeting, Detroit, MI  October 13-17, 2011 – ASSHTO Annual Meeting, Detroit, MI  December 7, 2011 - RONY Annual Meeting, TBA

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