Derailed
The Amtrak problem.

By Wendell Cox, member, Amtrak Reform Council
February 5, 2002 8:35 a.m.

mtrak is again in the news. Part of the reason is that the Amtrak Reform Council, of which I am a member, is releasing its congressionally required "action plan" for a restructured and rationalized intercity passenger-rail system. Another reason is that Amtrak has just announced that, unless it gets another $1.2 billion in federal subsidies, it will discontinue its long-distance train network and lay off hundreds of employees. One can only hope that Congress and the American taxpayer will dodge this bullet.

If there is an Enron of the public sector, it is Amtrak. Created to be a profitable company in 1971, it has received $44 billion in federal tax subsidies. Congress was so concerned about its deteriorating financial performance that it enacted the Amtrak Reform and Accountability Act (ARAA) in 1997. Under this act, Amtrak was to wean itself off operating subsidies, and was provided with a new "reform" board of directors to do the job. Top management was changed. And, the Amtrak Reform Council was established, with the purpose of monitoring Amtrak performance and notifying the president and Congress should it ever become clear that Amtrak was not going to meet the objective of operational self-sustainability by 2002.

But there was nothing more foreign to the new, reformed Amtrak than reform. Now, instead of train services being run to serve constituencies of powerful members of Congress, reform-board members got into the act. What, for example, could possess any rational human being to believe that a train from Meridian, Mississippi to Dallas was a high priority for expansion of passenger-train service? Why not Opelika to Cleveland? Amtrak conducted itself as if it were operating under the Amtrak Business as Usual and Unaccountability Act. The company specifically ignored congressional reforms that would have improved cost efficiency, such as contracting-out services and using more efficient private companies to provide some train services. Instead, Amtrak set about to increase its revenues, apparently on the assumption that the answer to every problem is more money. It went so far as to mortgage Penn Station to pay its day-to-day operating expenses. For Amtrak, the profit-and-loss statement has no expense side, just a revenue side. And, while Amtrak increased its revenue somewhat, its costs rose even faster.

This didn't keep Amtrak from pretending that things were going well. Right up to the September 11 terrorist attacks, Amtrak contended that it was on a "glide path" to operational sustainability. Then, Amtrak's strategy changed. September 11 created all sorts of new demands for train services, or at least we were led to believe. Then even pro-Amtrak reporters like Larry Sandler of the Milwaukee Journal-Sentinel began to look more closely and found that Amtrak ridership had not substantially increased. The Amtrak Reform Council and everyone who cared to look more than casually knew that Amtrak was in real trouble.

So it was in October, that Amtrak Reform Council member Paul Weyrich tabled a motion to make the finding that Amtrak would not achieve operational self-sustainability. Under intense political pressure to not act, the council made the finding by a 6-5 margin in November, with Milwaukee Mayor John Norquist seconding the motion, which I was pleased to support. Upon making the finding, ARC was required to publish an action plan within 90 days.

The action plan, which will be released February 7, would make it possible to use competition to achieve a market-based cost structure. It would separate the Northeast Corridor infrastructure from the rest of the system, so that the unique requirements of that important facility can be addressed outside the politics that have made it more important to operate trains through Havre, Montana than to undertake critically needed safety improvements that put hundreds of thousands of daily commuters in peril in the New York area. The plan also makes it possible to transfer service oversight for corridor services to the states, which are inherently more responsive to local needs than Washington's bureaucrats. But there are problems with the plan too. It would extend the already overly generous labor protections that require severance pay of up to five years. In this environment, needed efficiencies cannot be achieved. And, it buys onto the wrongheaded assumption that passenger-rail services are an end in themselves. In fact, all intercity transportation operations and infrastructure in this country, except for passenger rail, are paid for by fees and charges on users. Amtrak should be no different.

Amtrak's recently announced service cancellations and layoffs demonstrate that it has learned little. Faced with obesity, Amtrak prefers to cut off appendages rather than going on a diet. Amtrak's fundamental problem is costs, not lack of revenues. Amtrak's revenue per passenger mile is higher than that of either airlines or intercity buses. That means that if Amtrak's costs were competitive with airlines and buses, it would need no subsidy whatsoever. Yet, how often do we hear Amtrak proponents rail on about costs? It is time to focus on the problem, Amtrak's excessive costs.