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M&NJ's NRUC Boxcars
Investment Capital + Tax Dodging
Yuppies + A Tiny Shortline = M&NJ NRUC Boxcars
by John Deserto
The
M&NJ and its predecessor companies have never purchased new freight equipment
in its 133 year history. This doesn't mean that the M&NJ never had new freight
cars, it did. The story of how the M&NJ acquired hundreds of brand new boxcars
in 1978 is interesting and a bit complicated at times. A more detailed account
of this will appear in a future M&NJ RHS newsletter.
In the late 1960's the AAR (Association of American Railroads) was feeling
the impending crunch of a general purpose boxcar (XM) shortage and moved into
action to spur investment in railroad boxcars. In September 1970, they created
and the ICC approved, something called Incentive Per Diem (IPD). This
additional fee was charged on all XM cars during the 6 highest traffic months
of a year, September - February and was added to the mileage and normal per
diem (per day) fees. These IPD fees could only apply to newly built or rebuilt
boxcars, not old clinkers from the 40's and 50's. There were limitations on
the number of IPD cars a railroad could make available for interchange, but if
a railroad didn't have any boxcars during a set of base years they were not
limited to the number of IPD cars they could put into interchange.
The way the IPD rules were written invited investment from non traditional
financial sources and several new companies sprang up to harness the
advantages in the IPD rules for tax relief. One of these companies was
National Railway Utilization Corp. (NRUC). which was directed by a number of
investment bankers and insurance company officers. The scheme that NRUC
created was to provide people in the high end tax brackets with a tax shelter
while providing needed capital for purchasing new boxcars. The typical
individual investor would purchase several $33,500 to $33,800 XM boxcars
through NRUC, but would only put down a 10%-30% downpayment. A mortgage would
be taken out on balance of the bill. The individual investor would now get an
investment tax credit of 10%, about $3,350, as a dollar for dollar deduction.
Not bad, but it gets better. They also receive a 50% deduction on interest
payments from the mortgage and can write the whole thing off in 12 years for
depreciation. This is on top of all the mileage, per diem and incentive per
diem fees the cars generated.
The entire thing rested on getting a real railroad to allow its name to be
stenciled on the cars so they would fall under the IPD rules, this is where
the M&NJ came in. They were a real railroad and because they didn't have any
boxcars during the base period (1964-1968) they were unlimited as to the
numbers of IPD cars they could sponsor in interchange. NRUC approached the
M&NJ in December of 1977 offering them 7% of the lease fees if the M&NJ would
let them stencil the M&NJ's name on the boxcars. M&NJ owner Pete Rasmussen
jumped at the opportunity to make a profit from absolutely no investment as
the M&NJ was under no financial obligation for the cars what so ever.
The first batch of cars were built by Berwick Forge and Fabricating in
December 1977 and were delivered in January 1978. An additional batch of
Berwick cars arrived in February. In September and October an additional batch
of cars came from the Evans Railcar Division of Evans Products. In sum these
hundreds of cars represented 16.85 million dollar investment. All the cars
were 50 foot outside braced cars painted blue with white stenciling and were
immediately set loose on the railroads of North America. To earn the maximum
amount of money for the M&NJ these cars had to be kept moving, ping-ponging
from one railroad to another. A few did see "home" rails during the hey day of
the IPD craze, M&NJ customer Polytherm (now known as Genpak) shipped out loads
of expanded foam plates and trays to customers all over the nation. Even with
hundreds of these IPD boxcars under his control, Pete Rasmussen still noted
being short of empties during 1978 and early 1979 as those rolling money
tree's moved all over the rails.
Several things changed this cash cow to road kill; the recession of the
late 70's early 1980's, truck deregulation and increased investment in boxcars
by major railroads. The national recession was the greatest blow to the IPD
boom as the loads for the cars dried up and they began returning to the M&NJ.
Even the M&NJ's own boxcar customer, Polytherm, switched to truck deliveries
of its finished products. The out of service portion of the M&NJ was cleared
of almost 20 years of underbrush and trees as more and more faded blue boxcars
returned to remind Orange County residents of the economic doldrums the nation
was suffering.
Most individual NRUC investors backed out of their mortgages and the cars
were foreclosed on. NRUC was forced from its Philadelphia headquarters to
avoid bankruptcy and the blue M&NJ cars suffered through the weekly Sunday
ritual that cycled the cars that had just been returned to the extreme
southern end of the storage line while the cars that had been there the
longest remained on the northern end of the storage line. Slowly NRUC arranged
the sale or lease of all the IPD cars and by June 1990, they had all left the
M&NJ. Some were used by the Bay Colony RR to haul trash, others went to
shortlines NRUC owned like the Pickens RR and the St. Lawrence RR. The
reappearance of a faded blue St. Lawrence 50 foot boxcar as a spacer for last
winters delivery of the O&R transformer reminded many of the days when these
cars could show up on any piece of standard gauge track in North America.
The poor working stiffs that Pete Rasmussen and the M&NJ typify seem to
have made out fairly well in this scheme, whereas the over taxed yuppie and
the investment capitalists got burned when the IPD boom collapsed. When asked
to sum up the whole affair, Pete was happy to be involved at all and even
wished he'd been in on it from NRUC's creation in 1973. The possibility of a
million dollar profit with no financial risk is hard to get bitter about. As
it was, the M&NJ enjoyed almost 2 years of IPD boom money and it only cost
them gas for the chain saws and some diesel fuel.
Bibliography
Notes from Pete Rasmussen 1-13-01, as scribed by Peter Brill
Times Herald Record 4/24/84 Business Day p.40 LEASING BOOM ENDS, LEAVES
BOXCAR GLUT by Peter Thompson
Times Herald Record 12/7/80 Sunday Business p.122 RECESSION DERAILS BOXCAR
TAX SHELTER By Robert Riemann
Times Herald Record ?date ?page By Al Green
Railroad Model Craftsman Aug. 1989 A CLASSIC AMERICAN SHORTLINE M&NJ
Railroad Model Craftsman Feb. 1979 SHORTLINE FEVER Bruce Curry
Railroad Model Craftsman June 1990 PROTOFILE 58 M&NJ'S NRUC BOXCARS By
Wayne Sitter
Addendum
I recently
read the article posted to the website by John Deserto
concerning M&NJ's boxcars. I felt compelled to provide some
insight into the real reason for the founding National Railway
Utilization Corporation (NRUC.) NRUC was not established to
harness the advantages in the incentive per diem rules for tax
relief. Although unfortunately the initial vision of the
company was lost to the tax shelter John Deserto describes.
John Rees,
my father, created the vision for National Railway Utilization
Corp. and was its first President and CEO. Having been the
General Manager of the Morristown and Erie Railroad and
President of the Hoboken Shore Railroad in the mid 1960’s to
1970 he noticed that, even in times of a shortage, the average
box car was full only an average of 12 percent over it’s life.
The rest of the time it was under utilized sitting or traveling
empty. His vision was to increase boxcar utilization from 12
percent to over 60 percent. It would be done by finding
shippers in close proximity to the load and unload points. This
was essentially the routing of box cars from a shipper at point
A to a drop off in point B, to another shipper at or close to
point B to a drop off at point C, etc. Core to this strategy
was to build boxcars that were highly desirable for use by
shippers. The cars were well maintained, built with quality
components and included such features as nailable steel floors
and sidewall door openers.
The
achievement of this vision was very much a part of NRUC’s early
success and an average utilization rate of 88% was achieved. My
father eventually resigned as his vision for the company was
diluted to the leasing schemes as that became the focus for
revenue generation.
The demise of
the company was fueled by the recession in the early 80’s but
that alone did not cause it. NRUC’s success was not view
favorably by the established railroads and most specifically
Conrail who controlled the vast majority of the east coast.
There was a coordinated effort by Conrail to return to the
issuing short line, rather than use, any NRUC boxcar. Conrail
ignored any pre-existing shipper arrangements and, in some
cases, Conrail returned the boxcars home full.
I hope this
provides some further in sight into the company.
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