End of the Line:
The Failure of Amtrak Reform and the Future of America's Passenger Trains

December 1, 2004

Unedited transcript prepared from a tape recording.

Agenda:

Proceedings:

MR. GLASSMAN:  Please sit down, everyone.  We're about to begin.  And I'm not kidding this time.

Gosh.  Thank you for being so quiet, so quickly.  Did you have a good lunch?

Welcome to the American Enterprise Institute.  I'm Jim Glassman.  I'm a Resident Fellow at AEI and the host of Tech Central Station dot com, an appropriately named institution reflecting a famous railroad terminus for today's discussion.

Today, we present a book forum on End of the Line: The Failure of Amtrak Reform, and the Future of America's Passenger Trains, by Joseph Vranich.  And by the way, so I don't forget, books area available outside after the presentations.  You have to buy them, but they're available, and I hope you do.

For more than a century, the railroad passenger coach has occupied an interesting and useful place in American life, but at the present time the inescapable fact, and certainly to many people an unpleasant one, seems to be that in a decade or so, this time-honored vehicle make takes its place in the transportation museum, along with the stagecoach, the side wheeler, and the steam locomotive.

Those words were written by Howard Hosmer, in an important report on the future of passenger rail in the United States for the Interstate Commerce Commission in 1958.

Hosmer went on:  if railroad passenger miles, other than commutation, continue to decline at the average rate of reduction between 1947 and 1957, the parlor and sleeping car service will have disappeared by 1965, and the coach service by 1970.

Now, that estimate could well have been accurate, uncannily accurate, except that Congress stepped in in 1970, the date that Howard Hosmer said that coach service would disappear to rescue passenger service with the creation of Amtrak.

Since 1971, Amtrak has never made money.  That should be no surprise.  George W. Hilton, in a monograph on Amtrak, published by AEI in 1980, and provided to me very generously by Bob Helms last week, showed that passenger rail in the United States has been unprofitable since 1946.  And yet, Amtrak has survived.  Allow me the temerity to do a little quoting of myself.

In 1997, in a piece for U.S. News and World Report, I reported on a Senate hearing that I had attended.  Such hearings have been going on for years.  At the time, I noted that since 1971, Amtrak had received $19 billion in subsidies with no end in sight.  But the total through 2003 was $27 billion.  I quoted Thomas Downs, Amtrak's CEO, as saying, it is very clear that Amtrak cannot continue to go on as we have been.  Cannot go on.  And yet, does go on.

So why?  The message from everyone on the Senate subcommittee the day I attended, with the exception of John McCain, was keep those Amtrak deficits down, but make sure that your trains run through my state.

Kay Bailey Hutchinson, who chaired the panel, said she was giving Amtrak quote "one last chance," end quote I wrote, but then she nudged Downs to increase service in Texas from three days a week to seven.

Oregon's Ron Widen told Downs that quote "sharp pencil budgeting was required" end quote, but in the next breath remind quote "it's not a national rail system if you leave Pendleton, Oregon behind" end quote.

Amtrak's route map goes through--as far as I can count--all but two--maybe it's three--but I think it's all but two of the contiguous 48 states.  It is a network that maybe economically foolish, but it's politically brilliant.

In 1997, the year I wrote my little article, that was the same year as the passage of the Amtrak Reform and Accountability Act, which tried to straighten out the enduring passenger rail problem and the continuing flood of red ink.

In 1997, I was just a journalist doing a journalist's sketchy research.  Joseph Vranich, on the other hand, has written a very important book, which has just been published by AEI press as a project of the National Research Initiative, a new AEI program that supports research by university scholars and independent researchers.  In End of the Line, Joe Vranich looks at the reform effort and pronounces it a failure.

In addition to the continuing waste of running Amtrak on lightly traveled routes, Vranich looks at the severe delays that plague the delivery of Acela Express trains in the Northeast Corridor, the safety problems in New York rail tunnels, the vulnerability of the system to terrorist attacks.  He examines what's being done in other countries where private rail operators have taken over all or part of national systems.

Today, Joe Vranich will speak first.  He has been involved in railroad passenger issues for more than 30 years, including the efforts to create Amtrak, and is the author of two previous books on passenger rail travel.

He will be followed by two other transportation experts:  Wendell Cox.  He's a principal of Wendell Cox consultancy in St. Louis, and was appointed by former House Speaker Newt Gingrich, who is now of AEI, to the Amtrak Reform Council, playing a major role in fashioning its recommendations.  He co-authored an important study of Amtrak by the Cato Institute in 1997.  He was also a member of the Los Angeles County Transportation Commission.

In my 1997 article, I quoted Wendell Cox, whom I'd never met, and I've met now for the first time.  Why does Amtrak survive?  It is only because of politics, he said.  His solution then was to stop federal subsidies.  Let's see what he says now.

Peter Armstrong, our third speaker, assembled the team that successfully bid for the privatization of the Rocky Mountaineer Train, operate by Via Rail, Canada's equivalent of Amtrak, and has made that company, that operation, a winner without a government subsidy.  He's been given, among other honors, the Canadian Venture Capital Association's Entrepreneur of the Year Award.

Let me just offer one question that I hope the participants will discuss, and when I'm finished, they'll come up here.  Joe Vranich first, and then Wendell Cox and then Peter Armstrong, and then we'll have questions.

My question is this:  perhaps it is hopelessly romantic, but some people like trains, including me.  Anyone who's been to Europe has seen how efficient and popular rail service can be.  The TVG travels between Paris and Lyon, a distance and 285 miles in two hours and 10 minutes, and at that rate a train could travel between the center of Washington and the center of New York in a little over an hour and a half.  So, why don't we have fast trains in the northeast corridor.  And I guess maybe the flip side of that question is why do we subsidize rail to this extent and not other forms of transportation, or maybe not other forms of transportation as much, although maybe we do.  I'm not really sure.

First, Joe Vranich.

MR. VRANICH:  Thank you very much, Jim.  Thank you for those comments, Jim.  Excuse me.

The 1997 article that he wrote was excellent.  I recommend it to you.  U.S. News and World Report.

I've been asked how could somebody who's been such a great proponent of rail passenger service, and somebody who used to be a great advocate of Amtrak become such a critic today?  And there's an answer for it.  And one answer is in a way, I'm a caricature of a Norman Rockwell painting.  When I was a young guy, there were certain things that captivated me--certain airplanes, trains, and so forth.  And trains occupy an emotional component within American society.  You think of the train pulling into the little train station, and isn't this nice and warm and cozy and so forth.

And for whatever those motivations were, I worked very, very hard to see that Amtrak would become something good in this country.

How that I've become a critic is because it's not something that's good.  It's something that's absolutely terrible.  It's an organization that's calcified.  It's unable to change.  It's wedded to the status quo.  What airline or bus company do you know that doesn't change its routes when market demands change?

So, calcified is a great word for Amtrak.

More recently and urgently is my message that the Amtrak Reform and Accountability Act has been a failure.  I'll talk about that a little bit today.  And the third things is I'm going to spend some time talking about passenger safety today, because of what Amtrak has not done to improve conditions aboard its trains and on certain infrastructure that it owns.

We know that Amtrak is not in good shape today.  You need only look at the newspapers to see a report that came out from the Transportation Department's Inspector General a couple of weeks ago that says conditions are pretty sad, and it's a clarion call for significant changes.

And the Inspector General also said that Amtrak's spending priorities are unacceptable.  And the conditions we have today with Amtrak reflect the failure of that reform law.  I'll give you few examples.

The reform law wanted Amtrak to become more efficient.  After passage of the reform law, Amtrak started a train from Chicago to a little town near Louisville, Kentucky, that took four hours longer to connect Chicago with that little town than the old Pennsylvania Railroad ran in 1925--a train pulled by a steam engine, and making all the milk run stops.

So, it carried--I don't know--six--an average of six or ten riders a day.  Not very many.  So, we have a failure there.  Amtrak failed to become more efficient.

And by the way, I do admit to having called that train a Conestoga Wagon with lights.

[Laughter.]

The reform act wanted Amtrak to curb subsidies.  Well, Amtrak's at $27 billion right now in direct federal subsidies, not counting all the indirect subsidies that don't get put on its books.  And basically, there's no upper limit.  This is the interesting thing about--well, actually a lot of organizations in Washington--there is no upper limit.  Ask Amtrak how much do you want, and if you give them a billion, they want two.  If you give them two, they want three.  There's no end.  Somebody has to say, enough is enough with what's happening here.

And the reform act wanted stability for commuters.  Commuter trains in this country are funded completely independently of the Amtrak budget.  A railroad like the Long Island Railroad, which carries many, many more passengers than Amtrak does, is funded independently.  Yet, when Amtrak threatens to close down all around the country, all these commuters in New York, Philadelphia, Chicago, Los Angeles they're unable to get to work, even though the financing is fine for their trains, because Amtrak pulls this game of brinkmanship with the Congress.

So, this book, after I wrote my last book critical of Amtrak, Derailed, I said I wouldn't write another one, because you know why?  It's a lot of hard work.  But I got so irritated with all of these shut down threats that if Amtrak wants to know why is there another book out there now that's critical, I say, you did it to yourselves--where you're going to go out and injure and harm innocent commuters all over this country.  You're going to behave in an irresponsible way.  You're going to undermine a reform act.  In some way, somebody needs to get up and needs to speak about this.

I want to take a few moments to talk about train safety.  I've told my wife, my sister, my nieces, and nephews do not take a train to or through New York City.  The condition of the tunnels in New York is unsafe.  You need not take my word for this.  There are reports from the Federal Government and New York State Government about this.  Amtrak has owned the tunnels into Manhattan since 1976, and still we have conditions where there are no standpipes to bring water to a train fire in certain parts of the tunnels.  The exit ways, which really weren't designed for people to use anyway, but people will use them in an emergency, as you know, they're very narrow and spiral and some of them are 10 stories tall.  It's just a terrible set of conditions.  There's no ventilation system to get smoke and heat out of the tunnel, so if passengers and rescue personnel are trapped.  This is a terrible thing, even in normal times when a train could have an accident.

In an era or terrorism, we all know what happened in Madrid, when bombs went off on trains.  The repercussion are even worse.  Amtrak has had, as I said, since 1976 to correct these problems, and they haven't done it.

What have they done with the billions and billions of dollars we've given them?  They've spent money.  They've spread it around the country on lightly used routes that very, very few people ride, and they've shortchanged the key, most important piece of infrastructure in railroad passenger service anywhere in North America, and those are the tunnels into New York City.

So, if you have the feeling that I'm being as harsh as I can on Amtrak, you're right.  I believe this is such a display of just gross irresponsibility that I don't know what else to say about it except that we need to find a new way.  We need to have passenger trains in America, but not have Amtrak being the people running those passenger trains.

And by the way, one of the things about Amtrak is, and it transcends the tunnels, it's really about Amtrak in general, getting back to the bigger picture.

I could stand here for a long time talking about the dysfunctions, but instead I'm just going to just quote somebody who knows where of he speaks.  I'm very pleased to point out that today in the room is Tony Haswell.  Tony founded an organization dedicated to creating Amtrak years ago.  And I want to offer a quote that is--that I end my book with where Tony says, today, other big--former Amtrak booster--Tony says, Amtrak does not have a commitment to excellence.  Its overriding concern is to assure its institutional survival.  It is a sick and failed organization that should be put out of its misery.

Now, considering that that's coming from someone who's occasionally called the father of Amtrak, and he publicly admits to being embarrassed to hear that, I think that's rather significant.

So, there are a number of things the government needs to do, you know, and to conclude my prepared comments.  The government needs to look for a way to transfer the tunnels in New York to the New York Metropolitan Transportation Authority.  As troubled as they are, they are more of a responsible body than Amtrak is.  And by the way, 80 percent of the trains through the tunnels are commuter trains anyway.  It belongs there.

Members of Congress need to cut out this nonsense about how a central trains are to small communities, because they're not essential at all.  And over half of Amtrak's passengers are on two basic lines in the country--the northeast corridor, and in California.  And also it would help if members of Congress would pay attention to how 55 other countries--other nations around the world are doing away with their versions of Amtrak and substituting other things.  They have different names for it.  Privatization here.  Devolvement there.  But the key word is competition.  They're injecting competition in this business, and Peter Armstrong of the Rocky Mountaineer, when he speaks, is an example of that.

So, I just want to say thank you very much for giving me the opportunity to speak to you today.  Keep in mind that this book is the tip of the iceberg.  There are right now 40 million passengers a year in the United States ride on commuter trains operated by private companies in public private partnerships with government.  That's more than Amtrak, far more than Amtrak's 25 million, and if our commuter agencies could find a way to do it, we in Washington can find a way to do it.  Thank you.

[Applause.]

MR. GLASSMAN:  Transportation consultant, Wendell Cox.

MR. COX:  Thank you.  It's a pleasure to be here, and, Joe, congratulations on a fine book.  I'm looking forward to the next one.

[Laughter.]

In any event, if there is an Enron or WorldCom of the public sector, it is Amtrak.  Consider what they did during the period of time that our Amtrak Reform Council was operating.  Amtrak had been told you need to be on a glide path to self sufficiency and indeed everyone from Amtrak trotted up to Capitol Hill, came to us, went to the press, and said, we are on the glide path.  It includes governors who were on the board of directors who should be embarrassed at how they were misled and how they marketed really a false situation with respect to the performance of the organization.

As late as summer of 2001, before--just before 9/11, the vice president of Amtrak told us that Amtrak was still on the glide path to self sufficiency.  Well, of course, we all know what happened.  Dave Gunn is hired; comes in, finds $200 million missing, and it all goes down hill from there.

Now, consider what happened to the people who drove Enron and WorldCom into the ground.  Were they called to a meeting at the Department of Transportation wherein everyone responded by coming out three days later with a loan to Enron in order to keep them afloat?  Where it was generally perceived that Amtrak management got from the Department of Transportation what they wanted?  No.  Not at all.

The fact is within days of the time that the press broke the story about WorldCom and about Enron, there were congressional hearings.  Within days of the time that Amtrak was about ready to close down, we had congratulatory slaps on the back for an agency that had performed no different than private sector that had violated all sorts of rules and regulations and laws.

Over the period of time, we at the Amtrak Reform Council saw all sorts of lobbying by Amtrak and its interests to thwart the intention of the law.  We saw Amtrak specifically refuse to pay any attention to Joe Vranich's request, for example, to provide information on the freight services that he knew were not making money.  They said, we're not making money.  And, of course, Dave Gunn later, when he took office, killed, because, indeed, they were not making money.

We had a situation wherein essentially what was going on is Amtrak exercised over federal law a bureaucratic veto.  This is a very bad issue.  This is a bad precedent and has a lot to do--has to do with much more than transportation.  It has to do with a government agency out of control.

We in this country have the right to expect that our government agencies will go by the law and support the implementation of the law, but not Amtrak.

Now, a lot of people suggest well, Amtrak is absolutely crucial.  Five hundred communities have service.  We can't let the market operate and have so many communities lose service.

Well, those 500 communities represent less than one-sixth of the urban areas in the United States.  What about the other 70 or 80 percent of communities that don't have Amtrak service?  As a matter fact, there is more service to--there are more airports in this county with commercial service than there are with Amtrak service.  And you know what?  You can get up in the morning in Haver, Montana, and you can fly to Meridian, Mississippi, and be in bed that very same night.  If you want to try it by train, you're talking at three days.

The point is that we have a national transportation system.  We actually have two in this country.  One is the automobile system.  The other is the airline system, and I'll tell you a minute about how--about how it compares in terms of its performance to Amtrak.

We heard, Jim, you mentioned Europe.  Well, yes indeed Europeans ride trains.  Their distances are less, but we Americans need to be careful when we go to Europe and recognize we don't live there.  Of course, we ride trains when we go to Europe.  The fact is, however, Europeans travel approximately seven--about 79 percent of European travel is by car.  Eighty-five is in the United States.  So, it's not that much difference.

The fact is what we are doing with Amtrak--I mean anybody that's taking three days to get across the country by train is obviously not serious about transportation.  They're looking at leisure.  And I say, well, why don't we expand the program out of an issue of equity?  Let's start subsidizing people who want to take cruises.  Why not subsidize people who want to ride the Disney monorail?  I mean, there's really not much difference.  And my basic point is that the whole idea of subsidizing leisure makes no sense at all.

Now, that's not to suggest there isn't a value to the Northeast Corridor, but I'm convinced in the long run, the Northeast Corridor can be profitable, and we ought to be moving toward making it profitable and improving service.

Let me talk also a little bit about the politics of envy.  We hear about how it is that we should support and we should subsidize Amtrak because everybody else is subsidized.  The highways are subsidized.  The airlines are subsidized.  Well, if you don't understand the meaning of the word subsidy, maybe so.

But the fact is virtually all of the money spent on inter-city highways in this country comes from user fees paid by people who buy gasoline at service stations to drive on those highways.  If you don't drive, you don't pay.

A similar situation with respect to airlines.  We pay a ticket tax.  It builds the airports.  It pays for air traffic control.  There's a small subsidy that I will describe in a moment, but the fact is for the most part with respect to the airlines, if you don't fly, you don't pay.  Yes, indeed, there are parts of the air traffic control system, a small part, that's not covered by the airway trust fund, and indeed it ought to be eliminated tomorrow and air travelers ought to pay for that.  A lot of people like to say, well, about 9/11?  What about all that money we gave the airlines after 9/11?  Well, you know what?  We have a tradition in this country.  We compensate acts of war.  And I don't begrudge the airlines some compensation for their losses due to 9/11 anymore than I begrudge the Port Authority of New York and New Jersey compensation for the terrible losses that they faced.

But the fact is, that being said, all of the compensation and loan guarantees combined that have been paid under that Act represent, per passenger mile, one fiftieth of the subsidy of an Amtrak passenger.

In fact, you'll be surprised to know, Joe, I don't know if Amtrak's ever done this or not, but Frontier Airlines has actually paid back a loan.  Has Amtrak ever paid back a loan to the United States Government?

MR. VRANICH:  No.

MR. COX:  Finally, let me conclude by reminding you that Amtrak subsidies per passenger mile are very high--$0.18 in the last fiscal year per passenger mile.  That compares to $0.13 per passenger mile for fares--for buses and for airlines.

I've been quote and Joe's been quoted and others have been quoted as saying, well, we could buy air tickets for Amtrak riders and save money.  Indeed, we could.  Not only that, we could also provide the average Amtrak passengers a very nice dinner in addition.  It's that bad.

If we were to subsidize your auto and air travel at the same rate per passenger mile as we subsidize Amtrak air travel, it would be $4,000 per year, or $10,000 per household.

Back in the midst of the Thatcher Administration, the London Times at one point did an editorial in which they said public services are run for the benefit of those who are in them--who work in them, as opposed to those who depend upon them.  That's where we are with Amtrak today, and it's, as I say, a pleasure to be here, and I'm looking forward to hearing how things work so well in Canada.  Thank you.

[Applause.]

MR. GLASSMAN:  Thank you, Wendell.  Peter Arby Armstrong of Rocky Mountaineer.

MR. ARMSTRONG:  Ladies and gentlemen and sponsors of this event, it's a great honor to be here.  I am, as you know, a Canadian, so I'm not going to talk too much about what's wrong in the United States, 'cause I don't really know.  But I do know what is maybe wrong with train travel in Canada, 'cause I've lived through it.

I want to make sure one thing is clear:  I'm not a railroader.  I run a train, but I'm not a railroader.  And I'll explain that as I go through my comments.

Back in 1989, our federal government in Canada decided we could not as a small country afford the massive ever-increasing subsidies.  So, Benoit Bouchard, the Minister of Transport, decided we are going to cut the size of Via Rail, and we're going to try something different.  We're going to study if the private sector will come into the marketplace and purchase some of the routes.  Well, he was a very aggressive conservative minister, and he was able to get one route privatized.

And that route was the Rocky Mountaineer Route, which goes from Vancouver through Kamloots into Jasper area, Banff or Calgary.  It's an all-day light service.  It's a tourism product.

I decided to bid for this.  I was one of 20 groups that initially put forward proposals.  As I told you, I'm not a railroader, but I've been in transportation, and I put together a group of investors and operating people from the different railways, and we put in a proposal, and we won it.

I think the people of Via Rail were more surprised than anybody that we won it, because they had actually had their own Trojan Horse, a group of managers that had put forward their own proposal.  And they didn't win.  They were surprised.

But we thought we'd be really smart.  We thought right from the beginning what we would do is try to make sure that Via Rail was our partner, because everything I've ever done in my business career indicated that if you build up partnerships, you end up getting a lot more done.  I didn't want to have any animosity towards them.  I didn't want to have any difficulties.  So, I gave them a royalty.

Well, it turned out, first off, they misrepresented a lot of the facts.  Surprise, surprise.  And we went through some very tough times.  Via Rail had absolutely no motivation.   The amount of royalty that I could give them was inconsequential compared to the subsidies that they could get.

And we've had a terrible time.  They knew that we were going--with the business that we were going to be in, every couple years, they decided that they want to go into our business and try to eat our lunch.

So, we spend an inordinate amount of time dealing with those types of issues.  But what's happened?

Well, we started out right from the very beginning thinking that we were going to do something different.  We were going to focus on our guests, the clients.  We're going to do everything any other entrepreneur or any other business person would do, and that is understand what it is that your guests want.  We went from 7,000 guests, and this is being our 15th season, to approximately 80,000 guests.  We spend--sell a very high-end luxury product.  We also have a medium product.  We provide all the services that people would want.  And we have been able to grown because we have focused on exceptional guest service.

Now, I will tell you that Via Rail, their numbers have stayed static.  They've tried everything they can.  They've cut their prices.  My prices go up.  For the longest time, I couldn't understand why they just didn't get it.  I mean, we're operating out of the same station.  We're doing--they're seeing what we're doing, but their management style was they were abusive to their employees.  A lot of employees that I ended up hiring and finding to be extremely productive parts of our team, and those people, of course, if they're abused by their bosses, they sort of take it out on their guests or anybody else that's with them.

We learned a lot of lessons.  We think there's a tremendous opportunity for more growth in Canada and in British Columbia, and recently we were just awarded the rights to--over two new routes, one from North Vancouver to Whistler and from Whistler through Prince George to Jasper.

We're going to focus on attracting tourists and guests to our area.  But what happened in our area can happen elsewhere.

One of the things I just want to leave with you is I think Americans love trains.  Americans travel on trains, whether it's in Australia, New Zealand, England, all over the world.  Fifty percent of our clients, our guests, are Americans.  Americans love trains.  They just don't seem to like Amtrak.

And I think it's because they've decided not to focus on the things that make--motivate people to make those purchases.  I don't know what's wrong with Amtrak, but with Via, we've had eight different cabinet ministers responsible for transportation in 15 years.  One minister, who happened to be a rail buff, a good guy in his own right, but a little distorted in what the reality of the world was, was there for six years.  So, when you have that massive amount of turn in the senior management, and having a minister responsible for all forms of transportation in our country, you're not going to get a lot of time spent on passenger rail.

What we need in our country is a minister that stays a little longer and has a bigger vision and a longer vision.  I think that's maybe some lesson that you might be able to learn here.

The second lesson I think you can learn is entrepreneurship.  I'm now standing in the country that's world famous for entrepreneurship.  This is a country that that reinvents itself continually.  You should be very proud of your entrepreneurship.  It's a leadership thing, a skill that you have, that everybody else tries to emulate.  Trust your entrepreneurs.  There are people who will enter into this market and find solutions to problems quite easily.  It's one of the great things that you have here.

The third thought that I have is I'm constantly amazed at the political power that Via Rail has in our country, and it is a fear that there will be a political backlash.  Well, train ridership in 25 years under Crown ownership in our country has dropped from about seven or eight million people down to about 3.5 million.  It's halved.  Yet, if you read the annual reports, it's been growing exponentially.  But the actual numbers don't seem to prove that.

[Laughter.]

I do not believe there will be a political backlash.  There are fanatics who will come out, the special interest groups.  But one of the things that's very interesting is I think there's a movement away from special interest groups, and I don't--I'm personally not afraid of special interest groups, and I think politicians in our country are starting to learn that the common person has a lot of common wisdom and makes good commonsense decisions.

I think there is a future for passenger rail.  I think if the markets were opened up in our country, and most likely in your country, you would be surprised at the solutions that would come forward and the people that would come forward.  England privatized its rail.  Everybody watched with baited breath when that took place.  Deep in rooted unionism.  I think they created unionism.  And the whole idea of featherbedding.  Well, British railway used to have 600,000 employees, and now has--went to a low of about 100, and now it has somewhere around 140,000 to 150,000.

In Vancouver, at the Board of Trade on Friday, a gentleman by the name of Lou Allen, the General Secretary o the Train Drivers' Union, the staunch a unionist as you could possibly get, basically said privatization worked.  The first three or four years were difficult, and he gave--he cited reasons for this:  the fact that the railway infrastructure was turned over in deplorable condition.  But the standards expected by the new private operators were, you know, out of sync.  It takes time to rebuild that infrastructure.  There hadn't been any new purchases of railway cars for decades.  The private sector had to build their infrastructure up and the railway cars.  He is now a proponent.  He says I think it's good for my members.  It gives them job security.  It gives them an opportunity to get some increases.  He's seen more investment.  He's seen more improvement in working conditions, and he sees a positive attitude for his people.

I can' think of a better spokesperson for the initiative of privatization than the General Secretary of the Train Union out of the U.K.  Thank you very much.

[Applause.]

MR. GLASSMAN:  So, let me just ask a couple of quick questions, then we'll go to the floor.

This is a very sad and kind of outrageous and long running story.  Joe, why does it persist?  I mean, it seems to me that if it's such an outrage, and it's such a drain on the budget, and in a nation with so many entrepreneurs, as Peter says, why does Amtrak continue to exist the way it is.

MR. VRANICH:  That's a great question.  I think there are three answers why we have a calcified Amtrak system that stays year after year.  The first are railroad labor unions. They're certainly influential on Capitol Hill, and they're totally dedicated to preserving Amtrak.

The second is that there is considerable support from the railway supplier, because, after all, they want to sell locomotives and cars to Amtrak and so forth, so you get that sort of trade support.

But the third thing is something I want to get back to when I started my speech, which deals with the emotionalism of trains.  If you are a Senator or a Congressperson or a mayor of a town, you don't want to see a train pulled from your community.  But, you know, one of the things people don't really understand is when they say Amtrak--they argue to keep Amtrak 'cause they say it's essential.

To show you how non-essential it is, I once read in a Houston newspaper somebody saying well, we need to keep our train 'cause I take the train to the Houston Medical Center--I forgot which--for my treatment.  But the thing is you cannot get to Houston by train from--and I'm not going to do this, but I have an Atlas here--I could say Amarillo, Lubbock, Mineral Wells, Dallas--you could go on and on--Texarkana.  As a matter of fact, if a Senator is watching, and you want to do a filibuster that will last for days simply go on the floor with a map of the United States and read all of the towns that you cannot travel between by Amtrak.  And that, in itself, is de facto evidence that it is not essential at all.  But emotionalism comes into it.  A mayor says I want to keep my train.  The mayor calls the Congressperson.  The Congressperson, you know, does what they do on Capitol Hill, and we really need to look for a way to break this cycle and indicate that this highly mobile society has rejected Amtrak-style trains except in the busiest corridors.

And one final comment about Europe.  Most people don't realize it, but Amtrak-style trains are in decline around the world.  It's true more people are riding trains in Europe, but they're riding specific high speed trains or they're riding commuter trains in places like Paris.  Or they're riding trains like Peter's high-end luxury service.  You know, they're riding the Orient Express and specialized trains.  But Amtrak-style trains literally are in decline around the world.

MR. GLASSMAN:  Well, let me ask about high-speed trains.  I remember when I was writing my piece, which was, you know, seven years ago, that there was talk about an investment firm buying the Northeast Corridor routes.  That obviously has not happened.  Do you think that the Northeast Corridor route could be profitable in private hands?

MR. COX:  Oh, absolutely.  Yeah.  I'm sorry.  Absolutely.  The first thing you have to do is start with a market oriented labor agreement.  You need to be based--you need to have market determined costs, and I do personally believe, Joe, you may disagree with me, but I do believe that at least in the New York to Washington part of the corridor it could be profitable, and I mean not only operating but also capital coverage as well.

MR. VRANICH:  I think a lot depends on what kind of agreements are reached.  Who is paying for which part of the services that you're--for the tracks that you're running over.  So, I think, while Wendell believes it's true, I'm a little softer on it.  I believe it may be true.  It just depends on how it's all set up.

MR. GLASSMAN:  Question from the floor.  Raise your hand.  I'll find you and wait for the microphone, and we'll identify yourself.  This gentleman back here.

MR. FAYE:  Hello.  My name is William Faye.  I'm representing the American Highway Users Alliance.  In 1995, Senator Joe Biden took the floor of the Senate and said that if Amtrak were to be shut down, then the I-95 corridor would turn into a parking lot.  And we decided we'd test that theory or that statement.  We hired Wendell Cox to look into it.

What he found was that if the busiest Amtrak route were shut down, from Philadelphia to New York, that it would produce one additional car every minute and twenty seconds between those cities, and I remember at our press conference, we paused for a minute and twenty seconds reverently to see what--you know, just to--and said there's another car.  But that was the busiest route.  One the route that was the worst, and I can't remember exactly where it was, it was two hours and forty minutes between cars, additional cars that would be on that route.  Wendell, do you think that's changed a lot and do you think that--I mean, it does--add--kind of go to the question that you just were answering about whether that could be profitable when you have that little ridership today?  I mean is there something that could increase that ridership beyond where we were--where we are today between Philly and New York?

MR. COX:  Well, first of all I don't think it has changed much at all.  I don't think that you can make an argument that reduction or elimination of Amtrak service in a corridor would make any difference at all in perceived traffic congestion.  That isn't to suggest there isn't sufficient demand I think to support the system.  And, again, it gets down to recognition of the basic problem Amtrak has.  Amtrak's problem is not funding.  It's cost.  And I think it's, you know, I don't see a public purpose for train service per se, but if train service can be profitable or commercial, great.  And I think it is possible.  I agree with Joe, however; it's not inevitable.

MR. GLASSMAN:  I think, you know, first of all, I should hold up Joe's book, so everyone can see it.  But Joe here has this wonderful table, on page 40, where he compares use of the Amtrak national system with the use of airports, individual airports.  Total number, average daily passenger count in Amtrak is about 66,000.  That's about the same number of passengers who take off every day from Philadelphia International Airport, which is not, by the way, the nation's busiest airport.  So, it is--it--we're not really talking about all that many people.  Other questions?

MR. REED:  Thank you.  My name is Ken Reed, and I'm with a group called LOWER, which stands for Land Owners Opposing Wasteful Expenditures on Rail, but it's dealing with commuter rail--the Dulles Rail Project specifically.

A question for I guess Mr. Cox and for Mr. Vranich.  One of the things that Wendell advocates very vehemently for is competitive tendering.  Here in the Washington area, I know that we have had some success pointing out to people who don't realize that the people operate the Metro trains are making an average of $67,000 a year.  Some of them are making a hundred thousand fully loaded with benefits and so forth.  Metro puts very little into its capital program, and I'm wondering if this is the same with Amtrak.  Can you--maybe this is a way to create some outrage is if people knew what maybe conductors and others are making.  Can you give us some statistics on what these folks are making?  Do they have a sweetheart deal with their union and Congress?

MR. VRANICH:  Let me answer first because I'd like to defer to Wendell, who knows more about Washington Metro than I do.  And I don't know the actual salary rates for Amtrak employees.  I do know this, however.  What helps keep the system preserved in its state of perpetual status quo is that Amtrak, unlike virtually every employer in the United States, the world has a labor payout

[Tape flip.]

Train comes off, and you're an Amtrak employee, and you've worked there for a certain time, you get full salary and full benefits for five years.  So, all of the railroad buffs say, oh, well we can't discontinue trains, because if we do, you look at how much it will cost the Treasury.  So, there is a cost of labor--labor not even worked--that gets applied to stop the rejuvenation of the system.  And I thought that I would point that out.

Wendell, what do you want to add?

MR. COX:   Well, given that it's a subject of this forum, it would be inappropriate for me to say that the Dulles Rail System would cost more than getting all the new riders a luxury car.  And it would also be inappropriate to point out that the approval, the dedicated tax region wide for Washington Metro, would achieve the public purpose of greatly increasing your taxes and giving you nothing in return.

MR. GLASSMAN:  Sounds like a certain stadium that some people want to build.  But that's not a personal comment.  Okay.  Other questions.  Right there.

MR. GEDDES:  Rick Geddes from the Council of Economic Advisors.  This has been great in terms of laying out the conditions of the status quo, and it sounds like we're just trapped in this hideous political equilibrium at this point.  And it sounds like it's a long-term equilibrium.  And I'm just wondering what we could potentially do to break out of that.  I don't have any special knowledge in that area, but I was wondering if something like the Base Closings Commission might be an appropriate way to go, where you have an independent commission that looks at what routes should be retained and what should not be retained and then the Congress has to vote up or down on those.  Just an idea off the cuff.

MR. VRANICH: Interesting question.  As a matter of fact, Congressman Frank Wolfe, a number of years ago, did introduce an Amtrak-like or base closing-like legislation for Amtrak.  And I welcome your question because it gives me the opportunity to really take a moment and talk about the positive aspect: what are the solutions to this morass that we're in.  I mentioned briefly in my comments competition.  Competition is a wonderful thing.  It acts to cleanse the business environment, the best most competitive, most productive, most efficient people and organizations come forward and operate something.  And the beautiful thing about it is if you've got, let's say, the government has a contract with an operator.  If the operator doesn't perform, and there have been an operator in England that didn't perform too well, at least according to their standards, then you get rid of that operator, and you bring another one in.  You don't keep the same organization in year after year after year.

So, what does this competition look like?  Well, in some countries it's a pure privatization.  In Japan, J.R. East, J.R. West.  The former Japanese national railway system was broken up into six companies.  Three of them are traded on stock exchanges today and are profitable.  They're totally integrated in the way that they were privatized.  The rolling stock.  The stations. The tracks.  Everything was basically became a company.  So, and we've done that in the United States.  We did that with Conrail.  So, the United States knows how to privatize because we've already done it.

Then there's also--there are also devolvements schemes, where you, for example, you turn the track over to a state or a province, and then they go out and, through a franchise arrangement, get a company to operate over that.  Well, we've also done that in the United States.  This isn't mysterious.  This is not rocket science.  We did it with the Alaska Transfer Act, where we transferred the Alaska Railroad from the Federal Government--it used to be run by the Federal Railroad Administration down on 7th Street--that wasn't very wise--and it was transferred to the state, and they're running it, and they're doing a decent job.

I want to point something out, by the way.  There is a great market for railroad passenger trains that are catering to the leisure market and enjoying the scenery and so forth.  Peter Armstrong's operation, the Rocky Mountaineer in Canada, is an example.  But so is the Alaska Railroad.  The Alaska Railroad carries more passengers on their little line, which is a seasonal line, it carries more passengers every year than Amtrak carries between Chicago and St. Louis, between Chicago and Detroit.  There are a whole lot of lines I can mention here.

So, we've proven in this country that we can privatize and we can devolve.  So, let's take those lessons and apply it to Amtrak.

MR. GLASSMAN:  Wendell, do you have a comment or Peter on this issue of what to do.  Is there something--if you could do one thing right now to kind of set things in motion to make the sorts of changes that are needed for--to bring competition in or maybe just basically to shut the whole rail system down, what would you do?

Is it a presidential base closing type commission or is it injecting competition, a little bit here or there, or what?

MR. ARMSTRONG: I'd like to see in Canada and maybe it would apply here is what you did with your base closings I think is a amazing.  To be able to rationalize and modernize a structure that had built up over 200 years, and it's something that you needed for the next hundred years.

What seems to happen in every Crown corporation or federal run organizations or state is this resistance to change.  There is no ability internally for an organization to change.  You're going to have to do it from outside.  You're going to take some bold steps.  There might be a few missteps along the way, as Joe mentioned.  But I think ultimately it will be better in--if I lived in Toronto, I would want to run the service between Toronto and Montreal.  There's a major airline there, Air Canada, and to compete against them would be one of the easiest things.  You know, you just have to make easy in service and be polite, and you'd get a whole bunch of people who would just love you forever.  What's interesting is--I don't know if this is happening with Amtrak, but with Via Rail, they have two railway companies they have to deal with--CP Rail and CN.  I was told when I first got in that the most difficult people to deal with were going to be the two freight railways.  We negotiated commercial arrangements.  We pay approximately 10 times what Via pays.  We pay a commercial rate, and we get a great service.  These are two fabulous railway companies, and their staff is dedicated to running the trains on time.

But if you listen to Via, they're the evil organizations that they--and they're abusive to Via Rail, and they do so many unfair things, and the Via trains run 70 percent of the time late because of these railways.  Well, it's just true.  And it's that kind of attitude of abuse on their suppliers.  It's just so amazing.

I would love to have an opportunity to run the service.  They presently take over four hours.  I think you can get it down to three and half, cut the railways on some of the improved revenues, and you'd be amazed at what happens.  People want to see successful operations, and they will work with people who treat them well.

MR. GLASSMAN:  By the way, Wendell, the comments about the freight railroads versus Amtrak.  I mean, it's similar with Amtrak as well; isn't it?

MR. COX:  Yeah.  And I think one of the things we need to recognize in this country is the value--and also Canada-the value that the freight railroads represent.  I mean, one of the reasons why so many Europeans ride trains is because there's no room for the freight trains.  And so, where are the freight trains?  They're on the roads.  You can't believe the truck traffic on roads in Europe.  In Canada, 80 percent of the ton miles that are moved in that country are moved by trains.  In this country, something like 60 percent are moved by trains.

And so, we need to I think be looking to partnerships in the long run; programs that everyone can win at.  I think one of the major concerns, and this was one of my--one of the areas where I disagreed with the overall findings of the Amtrak Reform Council--I believe in the long run passenger rail operators should pay commercial trackage fees, not fees that are subsidized, that are forced by federal regulation to be overly low and give the railroads every incentive to slow down those passenger trains.  And one of the reasons I suspect that Peter Armstrong is so successful in his relations with the Canadian Pacific is that he's paying a rate that the Canadian Pacific is happy to get.

MR. GLASSMAN:  Other questions?  Let's see if we--you know, we don't have that much time, so let's hear all the questions, and then we'll just what we have time to answer.  Go ahead.

MS. CONNERY:  Yes.  Nancy Connery, a former member of the Amtrak Reform Council and also the Blue Ribbon Panel on Inter-City Rail.  I had the pleasure of working on those projects and was quite struck by the fact as bipartisan groups often times with various diverse views, overwhelmingly the groups ended up with the same conclusion, in effect supporting what Joe has written about.

But I was struck more--quite strongly by the private conversations we had with people in the state governments as well as in the freight rails.  Privately, they would explain their frustration with Amtrak, and, you know, the organization that they have to operate within.  But in fact, they could do a whole lot better, either as operators themselves or at least in some other kind of arrangement.  But unfortunately, the Amtrak structure prevents them from moving forward, and, in fact, often times prevents them from even publicly stating that.

So, in effect, do you see any opportunity for finding a new consensus with a new leadership probably from outside government to bring forth a kind of fresh new idea where you have a natural constituency base there, with strong incentives to move forward passenger rail that is not Amtrak?  So.

MR. GLASSMAN: Okay.  Let's not answer that quite yet, and collect another few questions, because we don't have that much time.  Is that all right?  Go ahead.

MR. GESSING: Paul Gessing with National Taxpayers Union.  Very quickly, what do you think about Ernest Istook's effort to penalize some of the liberal Northeast Republican supporters of Amtrak in the last Omnibus Bill by taking all their pork out of the bill?

MR. GLASSMAN:  Another question over here.  Well, you go wherever you want, Ryan.  You're the boss.

MR. SHORE:  Yeah.  In view of the fact that this is an audience that has very little familiarity with--

MR. GLASSMAN:  Would you identify yourself?

MR. SHORE:  I'm sorry?  Oh, yes.  Paul Shore, a member of the Board of Directors of the National Association of Railroad Passengers.  In view of the fact that this is an audience that has very little familiarity with passenger rail, I feel that I have to correct some incorrect statements that were made by Mr. Vranich and Mr. Cox.  Just to clarify some things.

First of all, Haver to Meridian is a two-day trip, not three.

Second, the fact that it takes three days to cross the country by train that is virtually irrelevant to whether Amtrak is a leisure service or not.  I happen to not believe that it is.  But, you know, if you look at any of the East-West trains, whether East Coast to Midwest or Midwest to West Coast, only a tiny percentage of those people are traveling across country.  Most of them are traveling between intermediate points.

Third of all, Mr. Vranich said that Amtrak doesn't change its route structure, but it has changed it route structure dozens of times during its institutional history, and he should know that.  And these are not just small changes, but large changes also.

And third of all, the New York train tunnel issue is being addressed, and there was an important article in the New York Times a few months ago about that, and I wonder what is he trying to accomplish by not mentioning that fact?

MR. GLASSMAN:  Okay.  Actually, let's stop right there.  The--let me--actually, let me ask you a question.  Has Amtrak ever cut out a state?

MR. SHORE:  Let me think about that.  Yes.  It's cut out Oklahoma in the past, for example.  And Wyoming.

MR. GLASSMAN:  I think Oklahoma is still on the--is still in the--

MR. SHORE:  It came back into the system, but it was cut out at one point--

MR. GLASSMAN:  Yeah.  Anyway, so it may change routes, but it doesn't--it doesn't--it has a route structure that goes to every--just about every contiguous state, still.  Okay.  Let's see.  Address whichever questions you would like to address.  How does that--for generosity.

MR. COX:  Let me very quickly indicate that our friend from NARP has it wrong, but I won't go into details.  The--

MR. GLASSMAN:  Well, then--that's not fair.  There's certainly--we don't need to nitpick whether it takes three days or two days to get from, you know--

MR. COX:  Well, that's what I'm talking about.

MR. GLASSMAN:  Mississippi to Montana.

MR. COX:  And the issue about whether it's leisure or not is a judgment call, and he has his judgment and I have mine.  But as regards to Istook's, Representative Istook's apparent action of pulling pork where members of Congress were seeking extra money for Amtrak in their areas, well, that's exactly the kind of thing we need.  It is about time we start closing down the whole pork business in this country.  We don't have a whole lot of money to be throwing around for projects that aren't of national significance.  And I say absolutely, he didn't go far enough.

MR. GLASSMAN:  Joe, could you address the--Joe, could you address in the last question, the safety issue, because you made a very strong statement.  You said that you tell your family do not take a train to or through New York City.  Justify that, especially out of these comments that things are getting better.  The tunnel situation is being addressed.

MR. VRANICH:  When you talk with people at Amtrak. things are always getting better.  Always getting better.  And if you look at their marketing plans, their annual reviews.  Their reports, their quarterly reports, everything is getting better, but things aren't getting better.  Their losses are increasing.  Don't take my word for it.  Look at the DOT Inspector General.  But the money that is going into the New York tunnels now is, in part, because the DOT Inspector General recommended to Congress that those funds be earmarked.  In other words, Congress told Amtrak do not take this money this time and go fritter it around on frivolous projects all around the country.  You will put this money in where the greatest safety dangers exist, where people's lives are in jeopardy.  And Congress went along with that and Congress earmarked the money, and there's also money coming in from New York State and the Metropolitan Transportation Authority.  And over the years, by the way, MTA has I believe put more money into those tunnels than Amtrak has, which, in a way, I don't argue with, because more commuters use the tunnels, but Amtrak is the owner.  And I'm a landlord.  I own a property.  And the landlord is responsible for the efficient, safe operation of the property, and in New York that landlord is Amtrak.

Do I have a moment to address Nancy on that?

MR. GLASSMAN:  Yes.  You do.

MR. VRANICH:  When it comes to what kind of change do I see coming about.  You know, I read a great book not long ago, the Tipping Point, where it talks about things change and then change some more, and change some more, and before you know it, something actually starts to happen.  A different paradigm comes into place, and I think that's what we have the opportunity to do with Amtrak now because there are a lot of people around the country who are very disenchanted with Amtrak.  It's bubbling up.

Go talk to the commuter train people in Los Angeles who a week or two ago voted Amtrak out as their operator and private operator in.  Go talk to MBTA in Boston, which voted Amtrak out and a private operator in.

So, I believe if you go to the State of Missouri, they wanted to find a way to get a private operator in to run the now Amtrak service there, and Amtrak used anti-trust techniques to stop them, saying, well, you cant' operate into our station and so forth.  Excuse me.  That's not your station.  The taxpayers of America paid for that station.  Let's use it for those who need to travel, and who will bring about the best service at the best price, and do something to grow railroad passenger service as opposed to keeping a big status quo.

MR. GLASSMAN:  Peter, on this day when the President is in Canada--he just made a very good speech I heard--we will let you as a Canadian have the last word.

[Laughter.]

MR. ARMSTRONG: We appreciate that President Bush came to Canada and thanked us for looking after those people who were caught in transit for four days.  It happened all across Canada, on September 11th.  It was a proud day for us, because we were able to say thanks and help out a friend in need.  It was very nice of him to make the gesture to come.

What I want to address in my final comments here is the gentleman who talked about the transcontinental service not being for tourists.  In Canada, we have a transcontinental service.  It is for tourists.  It is absolutely for tourists.  I am in the tourism business.  I sell that product.  I connect it with my service.

American Orient Express, a private company here in the United States, operates a network of trips across the country.  I assure you it's for tourists.  The largest number of riders are people that--'cause I talk to them when they come into the station, 'cause they--I have my offices in that station, 'cause I want to know how I can get my customers--more customers.  They're tourists.  I want you to be clear about this: they are tourists.  Nobody's going point to point.  Yes, there are some people that go from one station to another, and, for whatever reason that might be, but the large percentages of them are.

What's so amazing in Canada is we have a national agency that does marketing internationally for tourists, to get tourists to come to Canada.  I'm on the Board of Directors.  The amount of subsidy on the transcontinental service is greater than the total amount of money we have in our marketing budget to bring tourists in.  It would be more effective for us to shut down the transcontinental service, take those dollars, taxpayer dollars, and invest them in marketing internationally and bring people in.

One of the things we have in Canada, and you'll find it here, is we have an organization called Transport 2000.  It's a group, a very small group.  I went to one of their meetings.  If me and my buddy didn't go, they would have only had four people out.  They had six, and that was one of their annual general meetings in Western Canada.  And, but they get an incredible amount of play.  I actually think of them as Transport 2000 B.C.

[Laughter.]

And one last point, the new routes that we took, we bid for those against other companies--and on a route that never had made a profit.  There are people who are willing to invest and go after passenger rail, given the opportunity.  And I just hope that the thing that I hope that I get--see coming out of this book and all the efforts that Joe has put into it is the opportunity to allow entrepreneurship to thrive in this business and revive it.  Thank you.

[Applause.]

MR. GLASSMAN:  Thank you, Peter.  Thank you, Wendell.  Thank you, Joe Vranich.  An excellent book, and you can get it just outside, End of the Line.  Thank you, all.