May 2006
Amtrak: Thirty-Five Years of Subsidies, Waste, and Deception
Amtrak was launched on May 1, 1971, with the promise to revive America’s intercity passenger trains. Thirty five years later, many believe that America’s experiment with nationalized rail service has failed. Although it was supposed to become self-sufficient within a few years of its inception, Amtrak has absorbed $30 billion in federal subsidies and has repeatedly threatened to shut down the nation’s key rail lines when faced with cash shortfalls. For many years Amtrak ignored making safety improvements on its busiest and most vulnerable routes while plowing capital dollars into lightly used long-distance trains. Should taxpayers continue to pay for Amtrak’s mistakes, or should its thirty-fifth birthday mark the start of a new era for America’s passenger trains?
Joseph Vranich
Author of End of the Line: The Failure of Amtrak Reform and the Future of America's Passenger Trains
Mr. Vranich outlined Amtrak’s history since its creation on May 1, 1971. Though at the time he supported Amtrak’s creation, he claimed that if he knew then what he knows now, he would have immediately headed to Capitol Hill to argue against national rail. Amtrak began under Richard Nixon and was supposed to become profitable within three years. However, it immediately needed additional funds, and because of his problems with Watergate, President Nixon could not veto Congress’s subsidy bill.
Money troubles began early. Under President Paul Reistrup, Amtrak expanded to include “superliner cars,” cross-country trains for which there was little demand. In 1979, new president Alan Boyd shut down many of the money-losing trains in the face of a severe financial crisis. In 1995, Amtrak again faced financial difficulty, and its CEO Tom Downs acknowledged that it was close to bankruptcy. Under President Clinton’s watch in the 1990s, the Amtrak board was filled with notorious pork barrel spenders. Mr. Vranich called this the worst board in Amtrak’s history--an “extremist board” that brought Amtrak to the condition it is in today. For example, the board started train service between Chicago and Janesville, Wisconsin, that ran completely empty on many days. The financial loss was more than $1,000 dollars for each passenger it carried, which Mr. Vranich claimed must be “a worldwide record loss by any form of transportation at any time in our planet’s history, unless you want to define ‘transportation’ as sending astronauts to the moon.”
In 2002, the board hired David Gunn as Amtrak’s CEO in hopes of cutting costs. However, Mr. Gunn mostly maintained the status quo and was fired by Amtrak’s new board in 2005. The reason for Mr. Gunn’s departure is clear: in the last three fiscal years, Amtrak’s operating losses increased to more than $1 billion annually, with losses projected to increase by 40 percent over the next four years.
One of the main problems has been Amtrak’s deception; in its annual report for 2005, it did not mention the word “subsidy” once. It continues to operate big money losers, such as the Acela Express trains. Mr. Vranich proposed that in reforming the system, policymakers should:
1. Keep an open mind.
2. Learn from overseas train operators. Canada, for example, has a good privatized system that is profitable and expanding.
3. Relieve Amtrak of infrastructure ownership immediately.
Ultimately, Mr. Vranich argued that the federal government has no justification for owning Amtrak; it should leave rail transportation to the market.
Wendell Cox
Wendell Cox Consultancy
Mr. Cox offered some broader perspectives on intercity rail, comparing systems in Europe to those in the United States. He points out that while many Americans believe that the European rail system should be a model for the U.S. system, the rail system in Europe is not all that it seems. While there are trains in the dense metropolitan areas, the majority of European growth in the last forty years has been suburban. In fact, 91 percent of new travel in Europe is by car or by air--comparable to the United States’ 95 percent. To the extent that Europeans do use rail transport more than Americans, Mr. Cox argues that it is because they are less wealthy and less mobile. Similarly in Japan, most growth in the last forty years has been of suburban, single-family homes.
Ultimately, Mr. Cox demonstrates that the federal subsidies of our nation’s rail transport are absurd. The price and the amount of subsidy per passenger for rail transit are much greater than for private vehicle, bus, or air passengers. Mr. Cox argues that the government should not subsidize intercity rail transport. Amtrak should sell the Northeast Corridor routes to a private company and establish contracts for its other routes as well.
Ronald Utt
Heritage Foundation
Mr. Utt opened with a story of his personal commuting experience in the Washington, D.C., area. He decided to commute from his home in Fredricksburg, Virginia, on the Virginia Rail Express train to his office in Washington, believing it would save both time and money. However, he found the trains to be fairly unreliable and rather expensive--he could buy a full tank of gas for the roundtrip price of his and his wife’s tickets. He and other disgruntled train passengers began to carpool, which allowed them to arrive cheaper and faster. Others’ experience must have been similar, as ridership on the Fredricksburg line fell in 2005. In 2004, economists at the Department of Transportation confirmed what he had discovered on his own about rail transport: it was actually cheaper to be the car driver providing the rail subsidy than the rail passenger receiving it.
What then is the point of Amtrak? Some argue that it is useful for national tragedies, but recent events have shown that was not the case. On September 11, 2001, all trains were cancelled so that people were trapped in the cities under attack. In the face of hurricane Katrina, the trains in the Gulf Coast area ceased operation days before the hurricane hit, making it a relatively ineffective evacuation tool. Mr. Utt pointed out that since there does not seem to be clear social benefit, the government subsidies do not make sense. The public’s fond images of the railroad of the past motivates current Congressional support. More people support having a national rail system than ever use it. The railroad need not be eliminated; for reform, policymakers should weigh the merits of passenger rail generally, instead of just those about Amtrak and its administrative failures.
Iain Murray
Competitive Enterprise Institute
Mr. Murray gave examples of the process of rail privatizing that occurred in England when he was working at the British Department of Transport. The process of privatizing was a mess: the system of train owners, train operators, infrastructure owners, infrastructure maintainers, and regulators made operations difficult. However, despite difficulties, the change from public to private was generally a success. Ridership is up, revenue has increased over 50 percent since 1995, and the top train operators do not require any subsidization. Billions of pounds are being spent on new trains and infrastructure upgrades--something no one would have predicted during the public system days. Also, though the labor unions opposed privatization from the outset, they are now happy because drivers’ wages have soared, hiring has increased, and their bargaining position has improved. Train operating companies are also happy, and safety levels have increased as more money becomes available to improve the system.
There were some problems in the British rail privatization process. When Railtrack was publicly operated, the infrastructure was not properly maintained; in 1998, private operators were not aware how bad the situation was, which resulted in several fatal accidents. In the privatization process, it is important that the industry have full access to private sectors tools and be protected from arbitrary government decisions. Mr. Murray argues that Amtrak can learn several important lessons from the British experience:
1. Infrastructure must be up to par, and Amtrak should be divested of the responsibility to maintain it.
2. Personnel with privatization experience must be brought onboard, and people with railroad expertise must be maintained in the private company.
3. Lines that lose money should be contracted out.
4. Amtrak should be slimmed down for sale.
5. If a regulatory body is necessary, it should be have limited power.
AEI research assistant Lauren Campbell prepared this summary.
