What Is Railbanking?
Railbanking is a method by which corridors that would otherwise be abandoned can be preserved for future rail use through interim conversion to a trail. Established in 1983 as an amendment to Section 8(d) of the National Trails System Act, the railbanking statute allows a railroad to remove all of its equipment, with the exception of bridges, tunnels and culverts, from a corridor, and to turn the corridor over to any qualified private organization or public agency that has agreed to maintain it for future rail use. This property transfer precludes abandonment.
The abandoning railroad has the right to re-establish rail service on a railbanked corridor. Should that occur, the trail-managing agency ordinarily is entitled to fair market compensation from the railroad that wants to re-establish rail service. However, to avoid disputes, this issue should be specifically addressed as a contingency in the initial contract with the abandoning railroad.
A rail corridor generally has several ownership types along its length. A railroad may have purchased some of the corridor “in fee,” meaning it acquired an ownership interest in the land; it may have purchased some easements, giving it only the right to use the land; or it may have acquired the right-of-way through federal grants. Occasionally, there is no information about how the railroad acquired the property (for example, when the property has been acquired through adverse possession or condemnation). These ownership differences are largely irrelevant to a railroad while the corridor is in active railroad use. Once a railroad decides to abandon a corridor, however, these ownership distinctions become important.
Upon abandonment, under the law of some states, the railroad may lose any rights to possess or transfer parcels of land within the corridor to which it merely held as an easement and whose use is limited to railroad purposes. At this point, even though the corridor may appear unchanged, it may no longer exist as a right-of-way, and the owners of the underlying land (often adjacent landowners) regain full rights to the corridor. In these cases, acquiring a corridor can become incredibly complex because it may be owned by many different people.
A corridor that is railbanked, on the other hand, precludes abandonment, and railbanking preserves the railroad's right to transfer all forms of ownership, including easements, to a trail group. This arrangement can be very beneficial to the railroad company because it's able to sell the entire corridor instead of pieces, therefore reducing transaction costs, and allows the railroad to avoid the expense of removing railroad structures such as trestles and culverts. It also prevents time consuming and costly inquiries or litigation to resolve ownership questions.
Railbanking equally benefits trail organizations, whose acquisition of the corridor might otherwise be vulnerable to ownership challenges. The lowered costs to the railroad as a result of railbanking should be a factor in negotiating a lower purchase price. In addition, trail managers are in a position to resist attempts by railroads to employ an “across the fence” valuation methodology that does not take into account the railroad's inability to demonstrate fee simple title to the corridor.