IF YOU THOUGHT the $15 billion airline bailout bill was a bloated corporate welfare handout, wait till you see what Congress has planned for Amtrak. In the wake of September 11, with the airlines in precarious financial condition, the government-operated passenger rail service is now regarded on Capitol Hill as more vital than ever. Amtrak management has rushed a 10-year, $70 billion bailout request to Congress. That’s about as much money as it took to put a man on the moon. Despite the ludicrous price tag, House Transportation Committee chairman Don Young, the Alaska Republican, has already given the rail loan scheme a thumbs up. Democrats, meanwhile, are even more eager to throw money at Amtrak–and its 26,000 union workers. The Senate Democrats’ original bill included $9 billion in immediate emergency loans to Amtrak. This would be the largest single infusion of federal funds ever to Amtrak. If you’re wondering how this money found its way into an economic stimulus plan, well, it’s no more preposterous than the $220 million earmarked for pumpkin growers, cauliflower producers, and bison ranchers that Senate Majority Leader Tom Daschle has sought. Amtrak’s friends and foes alike agree that the train service is in horrid financial shape. Even though ridership is up 15 percent since September 11, Amtrak is burning money faster than ever. For every dollar it collects in ticket fares, it incurs almost $2 in costs. Earlier this month, Amtrak’s independent oversight council declared that at its current rate of losses the railroad will be insolvent by late next year. To avoid Chapter 11, Amtrak will need an additional $280 million in operating subsidies from taxpayers in 2002, which is a mere fraction of the estimated $10 to $20 billion Amtrak needs to modernize its trains and tracks. Things weren’t supposed to turn out this way. Five years ago, congressional Republicans commanded Amtrak management to wean themselves off taxpayer subsidies. Under the gun, Amtrak supporters promised that the rail service would break even by 2002. At the time, this plan seemed to have a plausible chance of succeeding. No more. Amtrak’s latest round of financial woes proves that the railroad’s financial independence plan is a hopeless sham. For at least five years, Amtrak officials have doctored the books by delaying billions of dollars of capital expenditures to pay their mushrooming operating costs. What is doubly infuriating is that in the new, post-September 11 environment of extravagant, industry-wide bailouts, loans, and insurance subsidies, Amtrak’s supporters no longer even bother pretending that the railroad will ever be able to roll on its own four wheels. Congress has arrived at a crossroads with Amtrak: Come up with a rational plan to cut Amtrak loose once and for all, or commit to a future of roughly $2 billion in annual taxpayer subsidies from now until kingdom come. What seems clear from this latest financial mess is that costs will continue to soar as long as the government owns Amtrak. Thanks to layer upon layer of duplicative management and an inability to fire unproductive workers, Amtrak’s employee productivity rates are only about one-fifth the level of the airlines (who are notorious for their own lack of productivity). Another problem is that political considerations prevent some of Amtrak’s most hopelessly unprofitable routes from being shut down. Many long distance trips (New York to Los Angeles, for example) carry a $500 per passenger subsidy. Over the past decade, every time an Amtrak passenger has boarded a train, it has cost taxpayers between $50 and $100. Amtrak’s latest scheme is to bet the house on high-speed rail service, which it hopes will entice millions of Americans back on board trains. But so far, high-speed rail appears to be merely the transportation equivalent of recent taxpayer-subsidized sports stadium boondoggles. One of the country’s foremost experts on high-speed rail is Andrew Selden, vice president for law and policy at the United Rail Passenger Alliance, a group that supports rail service but believes Amtrak is crippled by management stupidity. Selden provides compelling evidence that high-speed rail, rather than being Amtrak’s fiscal salvation, is turning out to be a financial black hole, particularly along the Northeast corridor. The new high-speed Acela locomotives cost $3 billion for the trains themselves and will cost another $7 billion for track improvements. The premise of the Acela is that speedier trains (they travel up to 200 miles per hour) will divert people away from cars and airplane shuttles and onto the trains. “That simply hasn’t happened,” explains Selden. “For travelers commuting from Washington, D.C., to New York, high-speed trains save only 15 minutes off the Metroliner’s 3-hour travel time.” That time-saving is not inconsequential. But few people have been willing to pay higher ticket prices to save 15 minutes. Before September 11, the high-speed trains were running at about one-third of capacity. (Even with the post-September 11 bounce in ridership, only about half the seats are occupied.) The aging business-class Metroliners were already below 50 percent capacity even before Acela was launched. “There was never any evidence to suggest that somehow doubling the Amtrak carrying capacity in the Northeast was going to lead to anything but emptier trains,” complains Selden. That brings us to the core policy issue at stake here: Are there public benefits from Amtrak that justify $2 billion a year in subsidies? When you pose this question to Amtrak management, passenger groups, or the rail unions, you hear three justifications for federal assistance: First, the railroad is a vital component of our national infrastructure and system of inter-city transportation; second, Amtrak benefits the nation through reduced traffic congestion, less pollution, and lower dependence on imported oil; and third, Amtrak’s competitors–bus and airline service–are heavily subsidized themselves. But these arguments don’t withstand scrutiny. Amtrak’s ridership volume is too low for it to have more than a negligible impact on road congestion, pollution levels, or dependence on foreign oil. According to Census Bureau data, more people walk to work each day than take the train. It would make more sense to subsidize Reebok sneakers than rail service. As for the long distance train routes, they carry about 5.5 million passengers a year. Ron Utt, an economic research fellow at the Heritage Foundation, calculates that this is roughly the number of people who travel out of just a single medium-size airport every year. Southwest Airlines alone has more than 10 million passengers annually. Unsubsidized inter-city buses carry 700 million passengers a year, and those passengers tend to have a much lower income than the taxpayer-aided Amtrak travelers. And except for the Northeast corridor route, which runs from Boston through New York, Philadelphia, Baltimore, and Washington, and some local routes in California, Amtrak is not a vital means of inter-city transportation. The third argument–that Amtrak only wants a level playing field with its competitors–isn’t persuasive either. True, the airlines made out like bandits with their bailout package in September. Nonetheless, per passenger-mile traveled, Amtrak subsidies are still at least 10 times higher than what buses and airline companies get. The latest Amtrak bailout proposal would almost double the per-rider handout, sloping the playing field even more steeply in rail’s favor. But all of these arguments may be immaterial because of an underlying political reality: The American public has a deeply nostalgic attachment to trains. Trains represent a romantic, bygone era, when train travel was posh and entertaining and the primary means of getting from one city to another. In short, Americans don’t want trains to disappear–even though few people actually ride them. Those families who do ride the trains like the idea of taxpayers kicking in half the travel expenses for their vacatio
ns. And if the voters don’t want rail service to come to an end, you can bet that Congress won’t let it happen. The good news is that even many rail enthusiasts, like the folks at the United Rail Passenger Alliance, now acknowledge that the existing federal monopoly structure of Amtrak is killing passenger rail service. Thirty years of federal ownership has made train service shoddy, undependable, and expensive. There’s no immutable law of economics which dictates that train service must lose money; other nations, including Japan and New Zealand, have proven that privatized rail service can work much more efficiently than state ownership. One alternative to another expensive bailout is to do what Andrew Selden favors: Break up the Amtrak system into discrete, independently operated lines. Under this plan, the long distance trains–which are used by tourists, not business travelers–could become self-sustaining private operations by exploiting the same network-effect efficiencies of flow and scale that the airlines have used so successfully with their “fortress hubs.” Under this plan, the government would still own and maintain the tracks and the rest of the physical infrastructure, just as it builds and repairs roads. But operational costs would be covered by private for-profit railroad entities. Once established, we could unleash all these entities to compete–something American passenger rail service hasn’t seen since the 1960s. The key is to allow the forces of competition and the profit motive to drive efficiency, innovation, increased output, and customer satisfaction in ways that monopolies are constitutionally incapable of achieving. Congress should immediately lift the monopoly protection of Amtrak, which prohibits private operators from running rail service on government tracks. This never made any sense. Amtrak says it needs this protection to keep out competitors who might “skim the cream” and take away passengers on the most profitable routes. But since none of its routes makes money, Amtrak has no cream to skim. Private operators could demonstrate that passenger rail service, if operated efficiently, can indeed make money. Admittedly, it’s uncertain whether this privatization reform option, which would provide reasonable federal subsidies of the infrastructure, can save passenger rail service. But the alternative–continued government monopoly mismanagement of trains, and another $30 to $40 billion in taxpayer aid over the next 20 years–is even more unattractive. For 30 years, Amtrak has promised that profitability was right around the corner. Congress should now demand that Amtrak turn that corner. Stephen Moore is senior fellow in economics at the Cato Institute.
