Diary

Privatize Amtrak

Sunday, May 1 is the 40th anniversary of the establishment of the government-owned Amtrak rail passenger system in 1971. This is a good time to sell Amtrak off. It should have been privatized decades ago.

 

Currently Amtrak consumes more than $1.5 billion annually in government subsidies. That annual cost to taxpayers would be eliminated if Amtrak is sold, and the government also would get the money from the sale.

 

A private company then could make Amtrak a real transportation system rather than a political tool designed to dispense goodies to public-employee labor unions and politicians while often providing downright terrible service.

 

The current Amtrak system is made up of two main parts:

 

*The Northeast Corridor, the short-haul routes of 200 miles or less in the congested corridors between Boston, New York City, Albany, NY and Washington, DC; and

 

*The rest of the Amtrak system which meanders across the nation and up and down on long-distance routes which carry relatively few people and have an astronomical per-mile subsidy requirement from the government.

 

A private company would focus its energies on maintaining the crucial Northeast Corridor, which is the only part of the Amtrak system that owns its own tracks. This would help to conserve capital and to make Amtrak a viable system for carrying these critical shorter-haul passengers in the heavily-populated Northeast.

 

This would have an added benefit. Since Amtrak’s cross-country routes run on the tracks of our excellent private freight railroad system, eliminating those routes would end the constant stop-and-go required of freight trains to accommodate the Amtrak schedule. This will make our freight trains much more efficient and will save large amounts of energy.

 

Here are excerpts from a report published September 20, 2007 on the always-informative Heritage Foundation website (heritage.org) called Congress Should Link Amtrak’s Generous Subsidy to Improved Performance by Ronald Utt, Ph.D, the Herbert and Joyce Morgan Senior Research Fellow in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation. It exposes many of the myths about Amtrak which are still true today:

 

*Since Amtrak’s creation in 1970, the executive branch has consistently proposed the least costly Amtrak budget. President George W. Bush has proposed that Amtrak receive $900 million in taxpayer subsidies for fiscal year (FY) 2008, the same amount that he proposed for FY 2007. However, Congress rejected the President’s FY 2007 request and instead provided Amtrak with a subsidy of $1.294 billion, the same as for FY 2006.

 

By contrast, Amtrak has asked Congress for $1.680 billion for FY 2008 — a significant increase over the FY 2007 subsidy — but unlike the previous year’s request, this year’s makes no particular commitment to implement major reforms. Indeed, at a time when it should be attempting to follow the airlines’ successful lead and seek reductions in the wages of Amtrak’s overpaid workforce ($54,000 per year plus tips for snack car workers), Amtrak’s new president announced early this year that he will “Strive to achieve labor agreements providing reasonable wage increases.”

 

*Unhappily for both, Amtrak’s monthly releases on ridership do not support the bullish press announcements about ridership trends, but instead reveal a still-troubled system losing market share and riders in its key service areas.

 

*In his recent grant request to the Congress, Amtrak’s president claimed — with questionable technical support — that “The growing attention to environmental quality and energy efficiency has accelerated the push to expand the role of freight and passenger rail.” However, the evidence shows that Amtrak is by no means a particularly energy-efficient mode of travel. Based on the Department of Energy data that Amtrak’s advocates cite, the preferred green solution would be to move Amtrak passengers to intercity buses, van pools, and hybrid cars. Ending Amtrak’s federal subsidy could accomplish these environmental and energy goals overnight.

 

*According to a U.S. Department of Transportation (USDOT) report in December 2004, Amtrak is by far the most heavily subsidized mode of travel in the U.S. Between its huge federal subsidies and its minuscule share of the intercity passenger market (less than 1 percent), Amtrak costs $210.31 per passenger per 1,000 miles, compared to $4.66 for intercity buses and $6.18 for commercial airlines in FY 2002. Because motorists pay far more in federal user fees than they get back in federal transportation spending, USDOT estimates that the federal government earns a “profit” of $1.79 per passenger per 1,000 miles from automobiles

 

*Amtrak’s shortage of customers also plays a role. On average, Amtrak trains are less than half full (47.2 percent load factor for the first nine months of FY 2007) when they leave the station.  Yet despite the high costs, Amtrak service is nowhere near the level of quality and attentiveness offered on most scheduled airlines. Any Amtrak passenger can confirm this by asking the conductor for a pillow and blanket or a complimentary coffee or soft drink.

 

The inefficiencies and incompetence that cause Amtrak’s food service losses are present throughout the system — in the maintenance yards, ticket sales, train operations, stations, baggage carousels, signal and track repair, janitorial services, and a host of other services. All of these combine to create huge per passenger losses on some of the routes that Amtrak inherited from a bygone era.

 

In addition … much of Amtrak’s federal subsidy is spent on long-distance routes to subsidize vacations for families and individuals who are capable of paying for their own recreation and entertainment. Shutting down these routes or requiring passengers to pay the full cost of the service could wipe out a substantial portion of Amtrak’s operating losses.

 

*Many other countries have struggled with the same inherent inefficiencies of passenger rail, and most have turned to some form of privatization to reduce costs and improve service.

 

Japan . Japan began to privatize its passenger rail system in 1987, when accumulated losses totaled approximately $600 billion and debt exceeded $300 billion. The system was split into six vertically integrated systems, and three were fully privatized. Since then, subsidies have been reduced, and three of the six privatized services are earning a profit and receiving no government subsidy. The other three, which serve the southern and northern islands, still depend on state support.

 

The United Kingdom. In 1993, the United Kingdom began a five-year process to reform its troubled passenger rail system by contracting out the operation of its many routes to several private companies. The effort has had some problems, and Railtrack, the original infrastructure company, turned out to be a disappointment in its management of the system’s roadbeds and signals. Railtrack has since been reorganized as a not-for-profit company called Network Rail to upgrade the system’s infrastructure, which suffered from underinvestment during its long period of socialist operation. Notwithstanding the controversy, ridership has surged to its highest level since the late 1940s, and measures of safety have improved from those recorded during the system’s public operation.

 

*Perhaps because of data problems, 2000 is the most recent year for which Oak Ridge has provided information on bus performance. As Table 3 shows, intercity buses consumed an estimated 932 BTUs per passenger mile in 2000, compared to Amtrak’s 3,253 BTUs per passenger mile, making buses almost four times more energy-efficient than rail. The 2004 data show that airlines have made impressive gains in fuel efficiency, narrowing the energy efficiency gap between planes and trains to only 17 percent. Other than walking or bicycling, buses still offer the most energy-efficient transportation option.

 

*In response to its lackluster ridership and poor performance, Amtrak often seeks to link its alleged benefits to non-transportation goals that are politically popular or of some urgency when Amtrak is seeking its taxpayer subsidies. While most Americans saw the terrorist attacks of September 11, 2001, as a national tragedy, Amtrak supporters saw it as a fundraising opportunity:

Within two days of the attack, the head of the National Association of Railroad Passengers (NARP), an Amtrak support group advocating federal subsidies, e-mailed members that “The tragedy and its aftermath raise the possibility that more Americans will see the need for more modern passenger trains. We will be pointing this out.”

 

Apparently, Americans did not see it as quickly or as clearly as NARP’s head hoped, because Amtrak was not included as part of the airline bailout despite its best efforts to wriggle into a place at the trough. So NARP’s next e-mail tried to make things clearer with the perversely accurate assertion that “Amtrak took on unusual importance right after the tragedy.” Unusual indeed: Within hours of the attack, Amtrak trains scheduled to leave Washington, D.C., as well as those of the Amtrak-operated Virginia Railway Express, were canceled, stranding more than 5,000 commuters in a city under terrorist assault.

 

*FY 2006 cost data for Amtrak’s 44 routes illustrate this problem:

 

Amtrak’s costliest route is the Sunset Limited, which connects Los Angeles and Orlando in a grueling cross-country trip. In FY 2006, it served only 51,860 passengers and generated $6.5 million in revenue but ran at an annual operating loss of $27.2 million ($524.49 per passenger). In FY 2005, the route generated $10.8 million in revenue but lost $35.2 million (compared to $29.3 million in 2004), yielding a loss of $433 per passenger. Amtrak could save money by shutting down the line and buying each passenger an airline ticket.

 

The Silver Service (Silver Meteor and Silver Star) between New York and Florida lost $132.6 million in FY 2006 ($226.90 per passenger). In FY 2005, it lost $105.3 million (compared to $87.9 million in 2004), yielding a loss of $146 per passenger.

 

 The Coast Starlight from Seattle to Los Angeles sold $31.8 million in tickets in FY 2006 but lost $43.9 million, or $132.25 per passenger, compar*ed to a loss of $97.50 per passenger in FY 2005.

 

According to Amtrak’s accounting system, long-distance trains accounted for 137 percent of allocated cash operating losses ($460.3 million out of a total of $336.0 million) while carrying only 15.3 percent of its passengers during FY 2006.

 

*The absence of passengers is a system-wide problem. In the Northeast Corridor, where Amtrak has invested heavily in Acela to provide quality and timely service in that corridor, the FY 2006 load factor was only 45 percent for all trains serving that route, which is below the 47.6 percent system-wide average and significantly below the 76.8 percent load factor for scheduled airlines.

 

Given Amtrak’s exceptionally poor ridership metrics, Congress may want to consider linking the generous federal subsidy to improvements in its load factor. For example, Congress could give Amtrak the same subsidy in FY 2008 that it received in FY 2007 but condition the FY 2009 subsidy on Amtrak’s increasing its load factor for FY 2008 to 50 percent. If Amtrak failed to fill at least half its seats in FY 2008, then the FY 2009 subsidy would be reduced by $100 million for every percentage point the FY 2008 load factor fell below the 50 percent target. Regardless of whether Amtrak met the target, each subsequent year’s target would be increased by 5 percentage points until Amtrak matched airline performance. By setting such reasonable goals, Congress could force Amtrak’s managers to shift their focus from congressional lobbying and antiquated train schedules to passenger satisfaction and the basics of modern transportation.

 

Please visit my website at www.nikitas3.com for more. You can read excerpts from my book, Right Is Right, which explains why only conservatism can maintain our freedom and prosperity.