Thoughts on Amtrak

The White House budget proposal is seeking bankruptcy for Amtrak, the only intercity passenger rail service in the United States. Amtrak is vital to our country. It provides the only passenger transportation option through many parts of rural America, and the only reasonably-priced option in many others that have only non-competitive air options to choose from. It is also vital for those that can’t drive. Finally, Amtrak operates the vital commuter rail service in the Northeast Corridor (NEC), which extends from Boston to Washington, D.C. Amtrak is the only way for many people to get to work each day or to go on business trips, due to the highly congested roads in the region.

Here’s a little history on Amtrak.

Railroads were a vital part of the nation’s expansion beginning in the late 1800s. Government programs encouraged the private railroads to expand by giving them large amounts of land (that they could then sell at profit) and through other means. Railroads were vital carriers of people and freight clear through the 1950s, and remain vital carriers of freight today. In urban areas, railroads also provide the most effective way to move large numbers of people.

One thing many people don’t know is that passenger operations almost never made a profit for the railroads.

After World War II ended, there was a heavy push towards the automobile from many areas. The federal government subsidized the building of thousands of miles of new highways and other automobile infrastructure. Also at that time, governments at all levels were spending money to support air travel. Meanwhile, the railroads had been taxed to their limit during the war effort, and every part of their infrastructure was in serious disrepair. They did not receive federal assistance.

Remember that railroads were all private companies, such as Union Pacific and New York Central. They were facing serious financial problems and began attempts to discontinue the money-losing passenger service. However, back at that time, many industries — including railroads — were “regulated industries”. They couldn’t make any major changes without government approval, and the government wouldn’t let them cancel passenger service. The inevitable result was a decline in service quality as corners were cut with staffing, maintenance, etc.

Finally, in 1971, matters came to a head. The federal government agreed to let the private railroads stop offering passenger service if the railroads gave their passenger equipment and employees to a new government-backed corporation — Amtrak. Amtrak would receive government subsidies to continue providing vital passenger rail service. The day Amtrak began, they inherited all the neglected equipment from the private railroad companies, and immediately canceled many routes due to lack of funds.

Amtrak has more or less limped along until the present day. It has had a string of problems, including never once receiving adequate funding from Congress, several incompetant CEOs (these are appointed by the White House and Congress), and its own difficult start.

Today, Amtrak continues to limp along. It received $1.2 billion last year, instead of the $1.8 billion it asked for. That means that, once again, corners have to be cut to get by. In 2002, the federal government provided $32 billion in subsidies for roads, $14 billion in subsidies for air travel, and less than $1 billion for Amtrak.

This year, the Bush administration is proposing about $360 million for Amtrak. This is a number that will force Amtrak into bankruptcy. They view the $1 billion or so that Amtrak gets each year as a “subsidy”, but the $32 billion spent on roads as an investment.

Strangely, the administration believes that forcing an Amtrak bankruptcy is a good thing and that private companies will be eager to operate rail services.

Unfortunately, they have forgotten the reason Amtrak exists in the first place.

Also, they have forgotten that almost no passenger transportation methods anywhere in the world can make a profit. Billions of dollars of federal, state, and local money support air travel — building airports, paving runways, operating traffic control systems. Railroads must pay for all of their infrastructure by themselves.

In reality, Amtrak is a true bargain.

6 thoughts on “Thoughts on Amtrak

  1. I won’t quibble about the economics of Amtrak, as I don’t really know how cost-effective it is. I will note that much of the subsidy for other modes of transportation have clearly beneficial economic effects to justify them, and that I don’t see similar clear benefits for passenger rail in that regard. Also, doesn’t passenger rail share some routes with freight, spreading the infrastructure burden?

    But even with this, I don’t see how Amtrak is “vital” in many of the ways you mention. Running empty or near-empty trains through rural areas is inefficient if those passengers could be moved onto buses; trains are only more efficient than buses if they are full. And if the trains were full, I suspect that the economic case for subsidies could be made a lot more easily.

    Yes, roads consititute a pretty hefty government subsidy for car travel. On the other hand, are we going to ever not need roads? Given that roads are a necessity, and trains are not, why is it bad to reduce the number of transportation services we subsidize by eliminating one that (may) make little economic sense?

    On the other hand, I suspect that those areas where Amtrak is performing a very useful service, such as Acela and other Northeast transportation services, could be preserved. Perhaps that is what the Administration wants to do: get Amtrak to cut the dead weight.

    Reply

    jgoerzen Reply:

    Hi Jeff, thanks for the comment.

    Both Amtrak’s own figures and my personal experience riding Amtrak bear out that the trains are not empty. In fact, demand continues to surge. For the “long-distance” trains (those outside the Northeast), it can be difficult to reserve a seat in the summer unless bookings are made at least a month in advance.

    It’s true that roads are a necessity. But given the choice between spending millions or billions to, say, widen a 4-lane highway to an 8-lane highway — or instead supporting an Amtrak route in the region with frequent, reliable service — money may be better spent on Amtrak. Rail is cheaper and scales better.

    As for freight railroads, it’s true that Amtrak runs on the freight railroads everywhere except in the northeast. They pay a fee to the host railroads for this privilege.

    In terms of saving actual money, though, by far the lion’s share of the Amtrak appropriation goes to the northeast. Estimates are that eliminating the long-distance network would, after several years, eventually save $50 million out of a billion-dollar appropriation.

    — John

    Reply

    Jeff Licquia Reply:

    Sounds to me, then, like the incompetence factor may be at work, somewhere: either Amtrak hasn’t made the case well enough, or the Administration is refusing to listen, or something.

    It’s also possible that some people believe Amtrak could be made profitable by weaning it from subsidies. I’m sure they’ll raise ticket prices in reaction, and maybe they’ll be able to sustain enough demand that they can raise revenue. Though, I admit, 60+% of your former budget is a high hurdle to jump.

    Reply

    jgoerzen Reply:

    You’re quite right. Amtrak’s own accounting has been confusing for a long time, and it’s only within the last 1-2 years that they’ve really made headway cleaning it up and making more sense of the numbers. Their previous president also perpetuated a fiction, claiming that their Acela Express was putting Amtrak on the “glidepath” to self-sufficiency. In reality, that project sucked vital money out of Amtrak. Had Warrington not resigned, he would likely have been fired by the board.

    Amtrak’s current president, David Gunn, is probably the best they’ve ever had. He’s only been on the job about 2 years though, which is not a very long time in politics.

    One of the bits of math that mislead people is this… People will figure out how many passengers Amtrak carries in a year, and their subsidy for the year. They’ll divide these numbers, and proudly declare that Amtrak loses $x per passenger, implying that if Amtrak carried fewer passengers, they’d require less of a subsidy. That’s actually not the case, especially outside the NEC; they do better when they carry more passengers because fixed costs are a large part of their operation and remain the same. Amtrak’s own accountants have issued these loss-per-passenger numbers, which are really meaningless and have lead to these odd conclusions. In defense of Amtrak, the president and board are all political appointees, so congress and the administration are getting out of amtrak what they put into it. (The neglect had happened across administrations from both parties)

    David Gunn has often said that Congress ought to decide what it really wants in terms of rail service. They keep arriving at a compromise which barely keeps the rail service from going extinct, never really funding it adequately, and never really terminating it either.

    Anonymous Reply:

    Hello,

    if you have loss-per-passenger figures and cost figures that show
    how much fixed cost you have, or how much it would cost you to
    carry 100.000 passengers more, then you should also be able to
    arrive at a number of passengers where you can operate with a
    profit. But your message indicates that such issues are not
    discussed…

    Btw, if you’re going from 1200 to 300-something millions in
    one step, being terminated is a real “option”. I guess the
    administration means it, only trying to cloud the issue for
    now.

    jgoerzen Reply:

    I appreciate discussions like this one with you.

    It really bugs me that the White House is saying that de-funding Amtrak is a proposal that will lead to dramatic expansion of rail service in this country, because it would free up private companies to operate services. There are two things wrong with that: 1) private companies are already free to operate services, and 2) they wouldn’t do it because they would lose money.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *