Is the End of the Line Near for Amtrak?

$200 million budget gap means changes

With Amtrak bleeding money and threatening to shut down train service, it’s time to bite the bullet and admit the truth: Congress’s 30-year experiment with nationalized rail service has failed. Since Amtrak’s creation in 1970, more than $25 billion in federal tax dollars have gone to subsidize its operations. And those amounts have been increasing over time, with $4.4 billion from 1998 through 2001. Both the Amtrak Reform Council and the Department of Transportation’s Inspector General have concluded that Amtrak is not financially sustainable.

Amtrak defenders claim that it’s unfair to focus so much attention on Amtrak subsidies. Look at highways and air travel, they say: they get federal dollars, too.

So, let’s look carefully. In 2001, highways received $33.5 billion in federal funds. But every dime of that came from federal gasoline taxes paid by drivers who use the highways. This is not a subsidy; it’s simply a user tax, paid by highway users to build and maintain the highways the drive on. Likewise, aviation received $12.6 billion in federal funding in 2001. Most of that came from user taxes paid by passengers and private pilots, and was used to pay for air traffic control and airport improvements. The several billion of general-fund monies for aviation went to pay for safety regulation by the FAA; that’s how we pay for all the federal safety regulatory agencies.

It is only Amtrak that receives actual federal subsidies – monies taken from general taxpayers for the direct benefit of users of the rail mode of travel. People who fly or drive receive no such federal subsidy.

How much has $25 billion in taxpayer subsidy gotten Amtrak in terms of market share? Ten percent? Five percent? Guess again. Every day airlines carry about 1.8 million inter-city passengers, while interstate buses handle 1 million. Amtrak’s long-distance inter-city trains carry just 20,000. That’s seven-tenths of one percent of the inter-city market.

To be sure, Amtrak carries lots of other passengers in the Northeast Corridor and on short hauls like Los Angeles to San Diego. But that’s not where it’s bleeding money. Amtrak’s major problem is the long-distance trains. According to the General Accounting Office, not a single Amtrak route outside the Northeast Corridor covers its costs from the farebox. The Auto Train from Virginia to Sanford loses $118 per passenger. The Sunset Limited, from Los Angeles to Orlando, loses a whopping $284 per passenger; that train alone costs three times as much to operate as it brings in via fares.

Of 40 Amtrak routes, 28 cost more than twice as much as their revenues to operate.

The Amtrak Reform Act of 1997 released Amtrak from the previous mandate to maintain a nationwide route system. But the agency has ignored that new freedom, continuing to pour subsidies into money-losing long-distance routes. And since Amtrak has failed to meet the self-sufficiency requirement of that act, Congress should take the logical next step of putting Amtrak into bankruptcy. That’s the only way to force the radical restructuring of passenger rail service needed in 21st-century America.

Bankruptcy means that Amtrak as a corporate entity would be liquidated. In other words, its assets would be sold off to satisfy its creditors, to the extent possible, freeing those assets to be used more productively by others. The GAO estimates that its crown jewel, the Northeast Corridor, is worth $4.3 billion; it also owns some valuable stations, locomotives, cars, and maintenance facilities. CEO David Gunn says Amtrak has $3.7 billion in debt to lenders and vendors on its balance sheet. That excludes any payback to U.S. taxpayers on the $25 billion in subsidies – but that money is best thought of as gone forever.

Back in 1997 Amtrak told the GAO that the costs of liquidation could be as much as $10 billion to $16 billion. But the GAO concluded that most of what Amtrak included in those totals was not liquidation costs, and that those who took over the Northeast Corridor and commuter services would assume most ongoing costs. Moreover, GAO concluded that the government (i.e., the taxpayers) would not be liable for “labor protection” provisions, which were removed by the 1997 Reform Act.

If Amtrak were actually liquidated via formal bankruptcy, what would happen to passenger rail service in the United States? Most of it would be maintained, but under a variety of new providers.

First of all, the Northeast Corridor could easily be viable, without the encumbrances of Amtrak’s costly labor agreements and the burdens of the Railway Labor Act, Railroad Retirement Act, and other special regulations that don’t apply to most other businesses. With post-Amtrak workers handled under Social Security and other mainstream laws, there would be lively bidding to purchase and operate Northeast Corridor service.

Amtrak does not operate the three largest commuter rail services: the Long Island Railroad, Metro-North Railroad, and Chicago’s Metra, which would be unaffected by the change. Amtrak operates commuter rail service, under contract to state or municipal agencies, in eight metro areas, including Boston, San Diego, and Seattle. Elsewhere, such services are typically outsourced to private operators, which would be happy to bid for the former Amtrak services. A number of British train operating companies, such as Virgin Rail and Stagecoach, are also likely candidates to bid for commuter-rail contracts. So there is no danger of loss of any of those services.

The same is true of regional services like the Portland/Seattle/Vancouver and Detroit/Chicago/Milwaukee corridors.

That leaves long-distance services, Amtrak’s current money pit. Even with deregulated post-Amtrak labor conditions, there is no way that basic long-distance train service (like the Sunset Limited) can be self-supporting. But there is a possible niche market for what are called “cruise trains.” Current examples include the Rocky Mountaineer between Vancouver and Banff and the American Orient Express and Montana Daylight in the American West.

Finally, what about high-speed rail? While the potential of American bullet trains has been greatly exaggerated, there may well be short/medium-haul markets where high-speed rail could be viable. But its best chance of success will come if it is pursued by entrepreneurial companies not burdened with Amtrak’s bureaucratic corporate culture and costly labor regulations.

For high-speed rail, the liquidation of Amtrak can only be a big plus.

Robert W. Poole Jr. is director of transportation studies and founder of the Reason Foundation.