Commentary

Reason.org
December 30, 2005

Amtrak's Waste Is Being Rewarded
More taxpayer money given to dismal failure
By Adam Summers

This has been yet another tough year for Amtrak.

Labor costs alone exceed all passenger-related revenue and on-board food and beverage costs are twice as great as revenues. As of July 2005, for every $1 Amtrak received in revenue, it spent $1.61. Amtrak's debt now stands at nearly $4 billion. And its notoriously poor on-time performance and maintenance backlog continue to be major problems.

Amtrak has boasted of record ridership numbers, but it has achieved these largely because of fare promotions which have actually caused revenue to decrease. Amtrak could drastically increase ridership by reducing fares to $1, but that doesn't mean it would be good business practice.

In mid-April, Federal Railroad Administration inspectors discovered that 317 of the 1,440 disc brake rotors in Amtrak's high-speed Acela trains, which operate on the flagship Northeast Corridor between Washington, D.C., and Boston, had developed cracks, forcing the company to suspend Acela service for months at a loss of $10 million per month.

In October, the latest in a series of damning Government Accountability Office (GAO) reports castigated Amtrak for its poor planning, management, and accounting. According to the GAO, "Fundamental improvements are needed in the way Amtrak measures and monitors performance, develops and maintains financial controls, controls cost, acquires goods and services, and is held accountable for results."

And last month, Amtrak President David Gunn was fired by the board of directors for failing to significantly improve its operations and management, and for his opposition to reforms such as introducing competition for passenger rail service, implementing shared federal-state fiscal responsibility, and spinning off the Northeast Corridor route to a wholly-owned subsidiary.

With all this bad news, Congress must have sprung into action to fix the problem, right?

It did—by rewarding Amtrak with even greater taxpayer subsidies. In fact, Congress increased the subsidy from $1.2 billion to $1.3 billion for FY 2006.

If all of this sounds just a little too familiar, recall that the Amtrak Reauthorization Act of 2002 was also supposed to provide more accountability while preventing threatened layoffs and route cuts. Back then, Congress was hopping mad about the lack of accountability within Amtrak and agreed to continue funding it, but, by golly, this time there were going to be some changes so that taxpayers' money would not be wasted. At the time, House Transportation Committee Chairman Don Young (R-AK) scolded,

Amtrak has been getting blank checks for the past 30 years and is near bankruptcy. Amtrak's management says it needs $1.2 billion to continue operating next year and we're giving them this amount. But we're also going to make sure that this increase in funding is spent where it is supposed to go and we're going to ensure that the Department of Transportation can carefully monitor where and how the funds are spent. . . . I have full confidence that with these new accountability provisions Secretary Mineta will be able to guarantee that American taxpayers will receive the full value for their investment by insuring that these funds are used for their intended purpose.

This was seemingly nothing but political posturing, of course, and now we find ourselves in the same situation.

The latest GAO report on the struggling railroad "company" speaks for itself:

• "Amtrak lacks a meaningful strategic plan that provides a clear mission and measurable corporatewide goals, strategies, and outcomes to guide the organization. Also absent is a comprehensive strategic planning process."
  
  
• "Amtrak lacks adequate data on what it spends on goods and services, preventing it from identifying opportunities to leverage buying power and potentially reduce costs."
  
  
• "While Amtrak has recently reduced costs, revenues are declining faster than costs, leading to operating losses exceeding $1 billion annually. These losses are projected to grow by 40 percent within 4 years."
  
  
• "Regarding financial reporting, GAO found that Amtrak had omitted or misallocated key expenses in several areas, substantially understating operating expenses in reports that managers use to assess performance."
  
  
• "Amtrak officials said that, in some cases, Amtrak's goals are an expression of ‘aspiration' rather than a realistic target."

If the CEOs of private companies allowed their businesses to operate this way, they would be handcuffed and carted away in high-profile "perp walks" by the feds and maligned as evil hucksters guilty of defrauding investors and employees. But a government-subsidized "corporation" not subject to private-sector accounting and transparency standards is rewarded with a raise.

While private sector companies must generate revenue by attracting and satisfying customers' needs, public-sector agencies and government-subsidized businesses answer to a different kind of master: government politicians and bureaucrats. When funding and management decisions are put in the hands of the government, they are based not on supply and demand, but on arbitrary political mandates driven by ideology or special interests.

The truth is that Amtrak is not so much of a transportation company as a welfare agency. In its over 34 years of operation, its has not once posted a profit, consuming a total of over $29 billion in taxpayer money in the process. During this time, it has enjoyed the rabid support of Republicans and Democrats alike.

The Northeast Corridor route through the densest areas of the populous Eastern Seaboard is about the only profitable line in the system, yet Amtrak continues to operate numerous cross-country routes at huge losses. The Sunset Limited, for example, which runs between Los Angeles and Orlando, continues to operate even though it lost $466 per passenger in 2004. (When you are losing more per passenger than the cost of a cross-country airplane ticket, you know you are in bad shape. Amtrak would be better off just buying these passengers plane tickets.) Despite the obvious lack of consumer demand to justify its existence, it persists because it runs through influential politicians' districts.

The building of the interstate highway system, technological improvements such as increased automobile fuel economy, and the rise of cheaper transportation alternatives such as cars, buses, and airplanes have rendered intercity passenger rail obsolete in the US. For the vast majority of people, rail is too expensive, too inconvenient, and/or too slow. No wonder passenger rail makes up only about 1 percent of all US intercity travel.

Shorter routes in densely-populated areas may be profitable, but operators should not be hamstrung by government edicts and restrictions, and should be forced to compete with other businesses and forms of travel. As for the rest of the Amtrak boondoggle, its government funding should be eliminated and returned to taxpayers, where it can actually be put to good use. Passenger rail privatization in various forms has been successful in numerous countries, including Great Britain, New Zealand, Australia, Japan, and Canada. There is no reason it could not work in America.

Adam B. Summers is a policy analyst at the Reason Foundation.