Amtrak got a whopping $2.45 billion loan from the Transportation Department last week, but it’s still unclear whether the heavily subsidized railway will use taxpayer dollars or its own future profits to pay it back.
“That’s the $2.45 billion question,” Taxpayers for Common Sense’s Steve Ellis told the Washington Examiner. “Are they going to be able to generate additional funds to pay back these loans, or is it going to put Amtrak further in the red?”
Since its creation in 1971, Amtrak has never made a profit and has survived through rocky periods when its continued existence relied on billions of dollars each year in congressional appropriations to keep it afloat.
On Friday, Vice President Joe Biden announced the multi-billion loan to Amtrak at the Joseph R. Biden, Jr. Railroad Station Wilmington, Del. Regardless of whether or how the loan is paid back, Biden argued it’s a key step to providing critical infrastructure upgrades to the ailing rail-lines needed to keep trains moving through the region, and to help commuters in the Northeast corridor.
“We need these kinds of investments to keep this region – and our whole country – moving, and to create jobs,” he said.
Amtrak said that it will repay the loan through growth in Northeast corridor revenues. “Amtrak is not relying on federal grants for this project,” the company said in a fact sheet about the new investments in Acela trainsets it plans to make with the money.
But that statement has drawn scrutiny from budget hawks in Washington who argue that Amtrak has never turned an overall profit, and has taken billions of dollars each year to continue to exist even though it’s Northeast corridor is used the most and makes the most revenue.
Michael Sargent, a research associate at the Thomas A. Roe Institute for Economic Policy Studies at the Heritage Foundation, told the Washington Examiner that there would be little difference between the loan that Amtrak received and an outright government grant without any repayment requirements if the Northeast corridor does not turn enough of a profit to bring Amtrak out of the red into the black.
Because Amtrak is so heavily subsidized by congressional appropriations, it’s looking like a defacto grant to Amtrak. “It still looks like we’re just borrowing from one government pot for the appropriations in order to pay off another government pot that is the federally administered loan,” he said.
An administration official provided a detailed accounting of the terms of loan to the Examiner Monday, noting that the term for repayment is 29 years with an interest rate of 2.23 percent. Amtrak can disburse the loan over a period of up to seven years, and repayments will begin in six years, September 2022, while the government will capitalize interest during the deferment period. The loan is secured by the collateral of the new Acela trainsets.
The official also designated the repayment source as “cashflow generated by the applicants [Northeast Corridor] operations, although he declined to say what would happen if Amtrak remains in the red even after this loan, such as whether the company could use any funds it receives through congressional appropriations to pay down the loan.
While Amtrak has said it would only use revenues it earns in the heavily trafficked Northeast corridor to pay off the loan, Sargent points out that a company’s money is “pretty fungible,” especially because Amtrak runs at a loss every year.
“In reality, when you’re running a business that needs [congressional] appropriations to exist, another federal loan is looking like another grant,” he said.
Amtrak’s Northeast corridor is its most successful route, and every other route drags the company down with while shorter legs get some state subsidies to help maintain them.
Ellis points out that the Acela system, Amtrak’s popular high-speed line, running from Washington, D.C to New York and Boston, has been a success in recent years but had a rocky start with severe cost overruns and problems with engineering.
In addition, he said, the loans as the administration and Amtrak has described them are not going to invest in new high-speed tracks to ensure the trains can run at their optimal speed of 180 miles per hour.
The Acela line operates on existing Amtrak train tracks, which slows their average speed to 160 miles per hour and hurts the train’s consumer pricing competition with airlines serving routes between the same Northeast cities.
“If you really wanted to create a viable competitor or eliminate the issue of competition with air, you would have a major infrastructure update instead of this piecemeal approach,” he said.
While there will be some track upgrades between Washington, D.C. and Baltimore, the Acela won’t be capable of running at competitive speeds even with the new trainsets because most of the tracks still “are not up to snuff,” he said.
