Papers

Amtrak’s trains first started rolling throughout the nation on May 1, 1971. Many had hopes that Amtrak would aid in the re-emergence of trains as a viable option in domestic travel. Nixon Administration correspondence on Amtrak stated, “It is expected that the corporation would experience financial losses for about three years and then become a self-sustaining enterprise.”3 However, more than just high expectations were riding on Amtrak; the very future of passenger rail service, along with thousands of jobs and billions of dollars, seemed to be up in the air as well.

It’s now 2002, and in the thirty-two years that have passed since Congress created Amtrak things have not gone as planned. To this date, Amtrak has received $25.3 billion in federal funding to cover its operating and capital costs.4 The three years of expected financial losses have turned into more than three decades of subsidies, and the prospect of achieving profitability anytime soon is virtually non-existent. The Department of Transportation Inspector General Report on the 2001 Assessment of Amtrak’s Financial Performance and Requirements found that Amtrak suffered operating losses of $1.1 billion, the largest in its history.5 As Joseph Vranich, former President and CEO of the High Speed Rail Association and member of the Amtrak Reform Council, suggests, “Amtrak’s financial hemorrhaging is irreversible.”6 So, should Amtrak keep sputtering along on tax dollars? This question will come to the forefront when the 108^th Congress convenes a few short months from now. The answer should be clear: for the future of passenger rail and taxpayers’ well-being, Amtrak must be dissolved.

VISION VS. REALITY

Early press releases, made available by the Amtrak Historical Society, clearly set forth the guidelines and standards that Amtrak wished to fulfill:

As this document clearly demonstrates, Amtrak had clear goals in mind when service began thirty-two years ago. Unfortunately, taking the mission statement of Amtrak apart, piece by piece, shows a persistent pattern of failure.

Goal #1: “Modern, efficient, and attractive service.”

Joseph Vranich found that Amtrak’s Acela Express (Amtrak’s crown jewel – the quickest and most high-tech train in the fleet) takes 3-½ hours to travel from New York to Boston, while in 1950, New Haven Railroad’s Merchants Limited took only 30 minutes longer.8 Fifty years have passed, billions of dollars in technological advancements have been invested, and a modern “high speed” train is only able to provide a 13 percent reduction in time. A Wall Street Journal reporter aboard the Acela Express reported that, “While roomier than a plane, the train wasn’t as comfortable as it might have been: The conductor insisted that we keep the empty seat beside us free of carry-ons. The train offers music piped by headset at each seat, but we couldn’t make it work at ours. We felt cramped in our 24-inch-wide seats.”9

As for Amtrak’s efficiency, Amtrak acknowledged in a 1994 statement that late trains were the “largest single area of complaint.”10 Amtrak’s method of calculating late trains fails to reflect actual performance, and is rather deceiving. Instead of taking into consideration the specific times at which a train pulls into stations along its route, Amtrak only reports the entire trip time from start to finish. This means that even if a train is 30 minutes late at a specific station, as long as it arrives at its destination within 10 minutes of its scheduled time, it’s considered on-time.

Goal #2: “[Transform] an outmoded, vestigal form of transportation.”

Perhaps the biggest mistake that Congress made while planning Amtrak was the failure to accept reality: the railroads were bankrupt because nobody wanted to ride them anymore. Attempts have been made to technologically come of age, but most have resulted in financial failure. The “high speed” Acela Express, which can reach speeds of 155-mph, started its runs between Washington D.C. and Boston in December of 2000.11 However, frequent breakdowns and a poor record of reliability have taken a majority of the Acelas out of service for the time being, hampering schedules and hurting Amtrak’s most lucrative routes.12 The Washington Post has quoted Amtrak President David Gunn as saying Amtrak would never order another Acela Express, and a recent lawsuit between the carrier and Bombardier Corp., the Canadian manufacturer of the Acela, has only made things worse.13

Goal #3: “Present downward trends of ridership and revenue must be reversed.”

Because of poor management of Amtrak’s assets and poor performance of Amtrak trains, this reversal is yet to come. As the population of the United States continues to grow and the gridlock on America’s roadways continues to worsen, commuters are returning to some railways; but, they aren’t riding Amtrak. Numerous privately-owned and-operated railways have appeared around the nation and have turned profits by offering fast, clean, and economical service to the general public. Commuter-trains play crucial roles in the life of America’s biggest cities, from New York City to Los Angeles, in providing an alternative method of getting to and from work. However, Amtrak plays a very minor role in this particular business, as it focuses more on operating long-distance passenger routes. From the Virginia Railway Express (VRE) of Washington D.C. to California’s CalTrain, the proof that people desire sensible rail options is in numbers, and the numbers show that few choose to ride Amtrak anymore.

If trains were quickly becoming an outdated means of transportation 40 years ago, before discount airlines and Japanese automobiles, why would they suddenly be of such importance today? The answer: congestion on America’s highways. The only regularly-traveled Amtrak routes carry daily commuters who are sick of waiting in traffic. The population of the United States has grown considerably over Amtrak’s lifetime, and will continue to do so.

But Amtrak’s ridership numbers have failed to increase, remaining stagnant for years. The National Association of Railroad Passengers reported that ridership along the Northeast Corridor has increased only 23 percent between 1988 and 2002, averaging only 1.5 percent growth a year. Amtrak’s Intercity and West operations have declined 7 percent over the same 15 years. However, commuter trains run by Amtrak under contract have increased in ridership from 15.4 million in 1988 to 61.6 million in 2000, a huge jump of 400 percent.14

Goal #4: “Uneconomic services must be curtailed.”

For the past 32 years, Amtrak has operated trains which have never met fiscal profitability. The Sunset Limited, for example, travels from Orlando to Los Angeles, a trip that lasts an astonishing 70 hours. One-way tickets cost $170.15 This train is generally empty during its travel, yet has been in service since 1971. The U.S. General Accounting Office (GAO) reports that of Amtrak’s 40 current routes in existence, a mere five of them contribute for half of its riders and revenue – all in the Northeast or Southern California – while in 2000, 14 out of Amtrak’s 40 routes lost more than $100 per passenger-trip. Amtrak’s route from Janesville, Wisconsin to Chicago lost $579.41 per passenger, covering only 6 percent of its costs.16 The GAO also reported that even the Northeast Corridor, extending from Washington D.C. to Boston, lost a total of $91.9 million in 2001.17

If Amtrak agrees that “uneconomic services must be curtailed,” virtually every route would be discontinued and Amtrak would literally stop in its tracks. To avoid a total shutdown of all Amtrak trains, the routes operating under the greatest deficits and carrying the least passengers should be eliminated while those most ridden should continue and improve towards profitability under private operation.

Goal #5: “A lean and muscular basic rail network, free of the duplicate services and hopelessly uneconomic routes, and the inevitable financial burdens they generate.”

Amtrak has done little to earn the confidence of the American public towards intercity rail travel as a viable option. From mediocre on-time performance to numerous maintenance problems on the Acela Express, the horrible financial situation at Amtrak can only be blamed on poor management. If Amtrak truly wanted to demonstrate concern and appreciation for the American people, it would make improvements to those routes which are most traveled, instead of pumping additional funds into areas of train service with non-existent prospects for growth. As House Speaker Dennis Hastert stated on NBC’s Meet the Press, the very same management structure that can be blamed for continuing unprofitable routes and other money-losing policies is now asking Congress for more funds – a textbook case of throwing good money after bad programs.18

In a September 20, 2002, Washington Post interview, Amtrak President David Gunn voiced his concern and anxiety about Amtrak’s future. The Bush Administration has laid plans to provide $521 million in federal grants to aid Amtrak through FY2003.19 Gunn and the Amtrak board have requested at least $1.2 billion for the 2003 fiscal year and said that with anything less, “We’re dead. It’s over.”20 Things are looking grim. In June of this year Secretary of Transportation Norman Mineta said, “It’s obvious that by 2003 they (Amtrak) are not going to be self-sufficient. Despite repeated promises that profits are only a little further down the road, they haven’t been. They come back to Congress every year with their tin cup.”21

Goal #6: “Clearly demonstrating its concern for passenger needs and by making service improvements wherever feasible.”

From flat ridership numbers and amazingly slow travel times, to uneconomical routes and the addition of non-passenger related tasks which have only hampered service, Amtrak’s reforms seem to have done more to cripple their image than to guide them into profitability. Take Amtrak’s Mail & Express Division, for example. In order to fight off increasing debt incurred by the lack of passengers, Amtrak has been towing freight behind its trains since 1997.22 Much to its credit, the revenues from this division have increased approximately 300 percent in the past ten years. However, Amtrak’s on-time performance has suffered considerably, mostly due to the additional time it takes for locomotives to switch these freight cars off the back of an Amtrak train and attach to another. Amtrak was established, not as a federal freight carrier, but a national passenger rail carrier.

After receiving federal subsidies totaling $25.3 billion to produce an attractive and appealing alternative to highway congestion, it’s only natural to expect results from Amtrak. Unfortunately, there aren’t any. The Wall Street Journal recently reported that as soon as November 1, 2002, Amtrak would stop guaranteeing the satisfaction of its passengers. Even Amtrak CEO David Gunn is unable to discredit such claims of mediocre performance. Says the article, “David Gunn, who became Amtrak’s President in May, said the guarantees imply a level of service that Amtrak isn’t able to deliver. ‘It flew in the face of what is happening to us,’ he says. ‘We were in no position to make that claim. Hopefully, we will be someday.’”23

Goal #7: “Clean passenger cars, on-time schedules.”

The Wall Street Journal reported the following: “Conditions aboard trains leave customers unimpressed, or worse. Passenger Steven Green, planning to return to New Jersey from Florida on Amtrak, wondered, ‘How bad could it be?’ By the time he got off the train almost 30 hours later (and more than four hours late) he knew. . . . He was awakened every time the door in the car opened and slammed shut. . . . Then there were the bathrooms, which he says weren’t cleaned en route and became filthy. ‘I refused to use them,’ he says. ‘The best thing about the train was getting off.’”24 Obviously, this rider will think twice before he ever rides Amtrak again.

Goal #8: “Appetizing meals.”

The Food and Drug Administration has imposed a permanent injunction on Amtrak after repeated food safety problems involving their dining cars.25 Those who take the risk and purchase food aboard an Amtrak train find that it’s both overpriced and simply not very good. It’s rare to find anyone lounging in the dining car these days, if in-service dining cars can be found at all.

What was true in 1971 continues to be true in 2002: schedules continue to be erratic, Amtrak continues to use the same trains it did when it was formed 32 years ago; and, as numerous riders have expressed, the experience continues to be a horrible one.

WHY THE VISIONS HAVE VANISHED

The only thing keeping Amtrak alive today is government subsidies, which have totaled $25.3 billion in all since 1971. Adjusting for inflation, Amtrak’s federal subsidies in current-year dollars exceed $44 billion.26 To add insult to injury, Amtrak has never paid federal income taxes.27 Until the ties between government and Amtrak are severed, these subsidies will continue.

It might be said that Amtrak exists today more for the purpose of producing votes rather than transporting voters. Congresswoman Julia Carson’s proposed $3.2 billion “National Rail Defense” bill (all of which goes straight to Amtrak) is a case in point.28 Amtrak’s primary maintenance facility is located in Beech Grove, Indiana (which lies in her district). Senator Robert Byrd of West Virginia is also a staunch supporter of Amtrak: “If Amtrak closes, the nation’s transportation system will be thrown into chaos. All of Amtrak’s 68,000 daily riders will be without service. Commuter railroads from east to west will be completely shut down.”29 As a sidenote, Amtrak’s Cardinal, which runs from Washington D.C. to Chicago and is Amtrak’s second-least-profitable line, runs straight through West Virginia.

For Delaware Senator Joseph Biden Jr., who sponsored an amendment to block the liquidation of Amtrak in the event that self-sufficiency isn’t reached before December 2, 2002, the case for Amtrak hits close to home: “If the administration continues to sit passively by, passenger rail will come to a screeching halt, hundreds of thousands of commuters will be scrambling for alternative transportation and our already congested highways will be overloaded.”30 (Senator Biden commutes on Amtrak from Delaware to Washington D.C. on a daily basis).31

It seems as though many elected officials have a greater desire to take credit for political patronage jobs, even when confronted with the facts and figures of Amtrak’s bleak performance and grim outlook, than they are to enact reforms that will ultimately benefit everyone (including their constituents).

Immediately following the terrorist attacks of last September, Amtrak ridership increased by approximately 15 percent nationwide; in the Northeast Corridor, where the Acela Express had been carrying a mere 15 percent capacity beforehand, trains became virtually filled to capacity.32 The fear which the terrorist strikes created among normally flying commuters took them out of the skies and onto the rails for a brief period, helping to boost Amtrak’s bottom line and provide the carrier with its highest ridership numbers ever. Things have begun moving back to normal as fliers have returned to the skies, but September 11 lives on at Amtrak.

The “National Rail Defense Act of 2002,” mentioned earlier, calls for $3.2 billion in federal aid to Amtrak, treating the carrier as though it were permanently traumatized by the attacks. The bill includes various questionable provisions, from bombproof wastebaskets to remote controlled locomotives which, if hijacked, could be automatically shut off from outer space.33 This legislation, along with others currently under consideration, shamelessly exploits the terrorist attacks as a means of further subsidizing what Allan Sloan of the Washington Post calls the “total mess that government inherited from bankrupt rail lines,”34 and what Representative Harold Rogers of Kentucky says “would reward Amtrak for their poor management and poor performance.”35

The absurdity of this recent legislation only increases when one analyzes the numbers. Joseph Vranich determined that the airlines, who transport 1.8 million people a day throughout the nation, were provided with $5 billion in emergency federal grants to fight off bankruptcy immediately following the terrorist attacks.36 He suggested that Amtrak, which carries approximately 65,000 people a day, may seek in excess of $3 billion.37 Thus while the airlines were granted $2,778 per passenger in emergency funds, Amtrak is seeking $53,333 per passenger. If Amtrak were a federally-regulated airline, carrying 1.8 million passengers a day, it would be asking for $90 billion in grants to “help it through” the aftermath of September 11. Other bills introduced in Congress are seeking $1.2 billion for annual “basic” needs, $5.8 billion for its capital investment backlog, and $12 billion for high-speed rail projects. An editorial column in The Economist sums it up well: “Giving Amtrak control over something like $12 billion in capital spending is insane.”38

In 1997, Congress passed the Amtrak Reform and Accountability Act. The legislation included a provision which stated that unless Amtrak reached self-sufficiency by December 2, 2002, it would have 90 days to initiate total liquidation of its assets and assemble a thorough corporate reorganization in order to pay off debts to its creditors and the federal government. The Amtrak Reform Committee reported in a finding dated November 9, 2001 that Amtrak would not achieve operational self-sufficiency by this date, nor by any reasonable later date.39

However, an amendment in the Defense Appropriations Bill of 2002, sponsored by Delaware Senator Joe Biden (who, remember, commutes on Amtrak on a daily basis) and South Carolina Senator Ernest Hollings, precludes Amtrak from spending funds to prepare a liquidation plan, thus buying Amtrak time to continuously lobby for additional funds and keep its trains running.40 One must wonder whether these Senators are acting in their own interests or the interests of the tax-paying public which they represent.

In any event, Amtrak’s stubborn defenders are fighting a losing battle against fiscal reality. They will soon be forced to choose between rewarding Amtrak’s special-interest allies for failure or allowing a new structure the chance to make passenger rail a viable commercial success in America.

SOLUTION – A LIQUIDATION PLAN

A carefully planned and stringently followed liquidation and restructuring is required to successfully and correctly deal with the failed national rail carrier, as well as its creditors, riders, employees, and taxpayers. Metaphorically speaking, the key to getting passenger rail back on track is to derail its ties to the government, through deregulation and privatization, thus cutting the government subsidies which have kept the wrong kind of trains running for 32 years. As Wendell Cox stated at a Heritage Foundation Forum in 1998, “Airline fare revenues per passenger mile are less than Amtrak subsidies per passenger mile. This is the absurdity – that it might be less expensive to buy every Amtrak rider a discount air ticket – instead of subsidizing Amtrak.”41 Similar to the deregulation of the airlines in the 1970s, Amtrak’s successors will have to operate in a more competitive environment.

Private firms on both sides of the Atlantic have voiced their interest in acquiring specific rolling stock, facilities, track usage rights, and commuter operating contracts from an immediate Amtrak asset liquidation. Again, from Joseph Vranich: “The extent of the market for Amtrak assets will become more fully understood when a franchise system is established and potential franchisees determine which Amtrak assets are needed for future train operations.” He continues, “Policymakers should concede that a good price will not be received for some assets no matter who the bidder. This situation is no different from private companies’ losing money on products that do not sell or nonperforming divisions. Washington policymakers must acknowledge the role sunk costs will play in the disposition of Amtrak assets.”42 With this understanding in mind, many of Amtrak’s non-essential assets will remain undesirable, such as dining cars, double-decker coaches, and older diesel locomotives. However, other assets, such as the Northeast Corridor rail-line upon which the Acela Express operates, valued above $4.3 billion, are in demand.43

Even as the December 2, 2002, deadline comes and goes, private-sector interest continues to increase for the franchising and operation of Amtrak’s profitable routes. American corporations such as Guilford Rail System,44 Railway Service Corporation, and Herzog Transit Services, as well as European corporations like Great Western Trains, Virgin Management Group, and GB Rail,45 have voiced their interest in acquiring the remnants of Amtrak and providing a profitable and competitive commercial rail infrastructure.

It should be noted that once a private corporation takes over the remnants of Amtrak, certain routes currently in operation would stop. The only continuous profitability that Amtrak can successfully sustain is on short routes that act as a commuter line between distant suburbs and large metropolitan areas. There’s one exception: New England’s Northeast Corridor. The trip from Washington’s Union Station to New York’s Penn Station, which extends approximately 275 miles, takes roughly 2-¾ hours to complete upon Amtrak’s “high-speed” Acela Express. Both stations lie in the heart of their proper cities’ metropolitan areas. A one-way business-class ticket upon this train currently costs $157.00.46 Compare that to flying. U.S. Airways Shuttle flies from Washington’s Reagan National Airport to New York’s LaGuardia Airport for $226.00, at a flight time of around 35 minutes.47 Add in the required time for baggage check, security clearance, and a taxicab into Manhattan, and the comparative opportunity costs come out virtually equal.

Other lines which connect large metropolitan areas within shorter distances, such as between Los Angeles and San Diego, remain profitable due to the horrible traffic jams and non-economical commercial airline routes. In this scenario, there is considerable likelihood that such existing railroads as Long Island Rail Road or Metro-North Railroad would bid to take over parts of the Northeast Corridor, and Southern California’s CalTrain would bid for services throughout the west. Smaller railroads who currently operate under Amtrak commuter contracts would push to expand their services and acquire real estate, such as Chicago’s Metra Commuter System.

While Amtrak’s total ridership statistics have been virtually flat for years, smaller regional railroads have been growing at double-digit annual rates, proving that even after Amtrak’s demise commercial rail services would continue to operate and, more importantly, turn a profit. The Virginia Railway Express (VRE) is one of the many small commuter railroads currently operated by Amtrak. In VRE’s first month of operation in 1997 they averaged approximately 6,000 riders a day.48 Five years later, those numbers have doubled, at nearly 20 percent annual growth, and show no signs of slowing down.49 Such regional railroads as Virginia Railway Express and Maryland Rail Commuter could overtake control of Amtrak’s lines in and around the D.C. area, without the cords which have bound Amtrak. Doing so would continue to provide desirable regional rail service to thousands of commuters, and would create new jobs for those who lost them with Amtrak.

CONCLUSION

The moment Congress attempts to pull the plug on Amtrak, a small but vocal minority of lawmakers will likely blame reformers for having blood on their hands. However, taxpayers are the ones who’ve already been bled of $25.3 billion. As long as this form of thinking continues, the bleeding will likewise continue, and no less than one billion dollars a year will be wasted.

Amtrak may have succeeded in keeping some of the public nostalgia over rail travel alive, but only the private sector can provide substantive service over the long term. It is clear that in order to salvage, not only the image and history of American rail travel, but its future as well, a federal oversight committee should immediately undertake the liquidation of all Amtrak assets. If Congress decides to continue subsidizing Amtrak, a horribly mismanaged and poorly planned quasi-public corporation run not by businessmen, but politicians on Capitol Hill, they will be robbing each and every American taxpayer. This “rail fraud” is no substitute for sound public policy.

About the Author

Tyler J. Pace is an Associate Policy Analyst with National Taxpayers Union Foundation. He is currently in his senior year at Brigham Young University, studying Political Science.

Notes