High-Speed Rail Meets Alice in Wonderland

In a scene fitting for a Lewis Carroll novel–perhaps this is nonsense business management rather than nonsense literature, Amtrak is reorganizing itself so that it can compete for high-speed rail service in the U.S. Apparently, Amtrak has decided that it couldn’t let foreign companies compete in its own backyard.

But, that logic is understandable. It’s the twisted accounting and balance sheets that give this the Alice in Wonderland quality that is truly breathtaking. According to The Transport Politic:

Amtrak’s enthusiasm in running services at high speeds reflects the fact that fast train operations make a lot of money — as long as capital costs aren’t included in the equation. With most new American rail lines expected to be funded through grants rather than bonds, and with limited involvement thus far with the private sector, it appears that operations will not be expected to cover back-payments on construction loans, leaving profit potential for companies like Amtrak. There has been limited success in using operating revenues to subsidize capital cost repayments despite several efforts in both Europe and Asia. There is a structural and perhaps immutable conflict between the short-term profit-making interests of rail operators and the long-term benefits offered by infrastructure investments.

The long-distance lines that Amtrak is compelled to operate through acts of Congress all lose money on an annual basis.

So, as long as we selectively exclude costs–large costs–Amtrak can make money.

To be fair, Amtrak is not entirely inept at running rail services. It is hamstrung by byzantine labor contracts that drive costs up well above what are reasonable. But, perhaps not surprisingly, it’s most “successful” conventional intercity lines measured by performance, such as the Downeaster and the Chicago-Milwaukee Hiawatha lines–are under contract to state governments.

Interestingly, the publicly owned and managed monopoly on intercity train service is undergoing this organizational revisioning and transformation now that it faces competition…from foreign companies no less!

Samuel R. Staley, Ph.D. is a senior research fellow at Reason Foundation and managing director of the DeVoe L. Moore Center at Florida State University in Tallahassee where he teaches graduate and undergraduate courses in urban planning, regulation, and urban economics. Prior to joining Florida State, Staley was director of urban growth and land-use policy for Reason Foundation where he helped establish its urban policy program in 1997.