Ever since privately owned freight railroads were freed by Congress in 1970 from their public service obligation to operate unprofitable intercity passenger trains—a law that created publicly owned Amtrak—a debate has raged in the US over how much passenger rail service is enough, how fast passenger trains should travel, why passenger trains aren’t profitable, and who should provide the subsidy that keeps them afloat.
Amtrak loses money, as do all rail passenger systems across the globe.
Hauling coals to Newcastle for sale offers greater likelihood of profit than operating an extensive rail passenger network. No matter Amtrak’s record intercity ridership of 31 million passengers annually, or that its ticket sales and other revenue (such as operating commuter trains under contract to state agencies) recover 89% of its intercity train operating costs.
While government subsidies keep Amtrak trains running, those sums perennially fall short of fully satisfying Amtrak’s capital-investment needs—like the purchase of new locomotives and passenger cars, plus renewal of track, signals, bridges, and stations.
Among some 500 bridges that along Amtrak’s Northeast Corridor (NEC) between Washington, DC, and Boston—each a century or more old, and requiring extensive rehabilitation—is one spanning New Jersey’s Hackensack River. It needs a $1.5 billion replacement. New tunnels under the Hudson River to replace 115-year-old twin bores come with a $13.5 billion price tag. Another $1.2 billion is required to replace a 142-year-old tunnel under Baltimore. Overhead catenary delivering electricity to trains dates to the 1930s. New safety systems, which might have prevented the Philadelphia fatal derailment and which are nearing completion along the NEC’s entire length, have siphoned substantial, scarce, dollars.
Just to modernize that 450-mile NEC infrastructure–which carries some 12 million Amtrak passengers annually, plus millions more riding commuter trains that utilize the track—requires more than $20 billion.
Upgrading the entire NEC for Japanese or French-style high-speed passenger trains would require another $150 billion. Infrequent bursts of congressional generosity have permitted Amtrak to launch limited 100-plus mph service over 65% of the NEC (the Acela trains), but at far slower speeds than high-speed rail elsewhere on the globe.
On average, Amtrak can coax no more than $1.5 billion in subsidies from Congress annually, which barely allows fluid operations, and delays most modernization projects.
Nationally, Amtrak’s intercity passenger network is spread over 21,000 track miles in 46 states, with 520 stations. Its jewel, of course, is the 450-mile Amtrak-owned NEC (fewer than 60 miles of which are state-owned), which earns a slight operating profit–excluding capital costs for equipment and infrastructure. Elsewhere, Amtrak long-distance trains operate over freight-railroad owned track, with Amtrak paying access fees. The unprofitability of those long-distance trains is immense, with losses exceeding $100 per ticket sold.
For sure, an economic argument can be made for jettisoning Amtrak’s money-losing long-distance routes in favor of concentrating on population-dense corridors, such as the NEC. Indeed, why operate a money-losing passenger train from New York to Chicago when three New York area airports offer multiple flights each hour at prices a fraction of Amtrak steerage? Why operate a train between Chicago and Los Angeles when the per-mile passenger fare—on which, again, Amtrak loses money—averages 34 cents versus 15 cents per-mile per-seat on an airplane operated by a profitable airline?
The reason money-losing long-distance trains continue to operate is that the economic arguments for eliminating them fails the political test. Once the good folks of a given state or city lose their once-daily, long-distance train, the congressional lawmakers representing those souls are less likely to allocate tax dollars to the NEC, which still needs those subsidies for capital expenditures.
Equally unlikely is that financially strapped northeastern states hosting the NEC could afford to make up for the lost federal subsidies on their own. They can barely afford commuter train operations, which, incidentally, already use up political clout, as politicians work to avoid paying full-cost recovery fees for the use of Amtrak’s tracks. Raising ticket prices would significantly sabotage a core function of public transit, which is to shift travel from congested highways to environmentally-friendlier rail.
Could private operators do better? Even if all long-distance passenger trains were eliminated, the first question before privatizing NEC operations is: who will pony up the billions needed for infrastructure renewal and future equipment acquisitions?
Perhaps a private operator could tame Amtrak’s labor costs, which consume 50% of its expenses. Amtrak’s unionized workforce earns the equivalent of workers on highly profitable freight railroads, placing them in the top 6% of wage earners nationwide. That’s even though Amtrak competes, along many routes, with lower compensated bus operators.
Amtrak’s labor contracts require it to pay a much greater percentage of employee healthcare insurance premiums than other industry; little progress has been made in contracting out food and beverage services, NEC track and signals maintenance tasks, or reducing the number of on-board employees as technology makes their tasks obsolete. In fact, where Amtrak has pursued a hardline in contract negotiations, congressional supporters of its subsidy have interfered.
Congress, meanwhile, saddles Amtrak with an open-ended employee injury compensation scheme—the Federal Employers’ Liability Act (FELA)—by which Amtrak employees can and do collect millions of dollars in punitive awards, since FELA is fault-based rather than rehabilitation-focused. Under FELA, injured rail workers sue their employer. Congress also requires Amtrak to participate in a defined benefits pension plan that costs Amtrak 13% of payroll on top of its 7.65% employer’s tax for social security and Medicare.
Amtrak endures the Sisyphean task of running an underfunded railroad—safely—in the midst of congressionally-imposed higher employee costs and political interference in route determination, labor negotiations, and even dining car menu offerings: Florida Republican representative John Mica, when he was chairman of an Amtrak House oversight committee, held hearings focused on the price of a hamburger and beer sold aboard Amtrak dining cars.
Whether America retains a national rail passenger system that includes long-distance trains, or has one limited to high-population density corridors, the service will forever require subsidies. Subsidies require tax collections, and the mood at the ballot box lately has not been in favor of raising taxes.
For proof, look no farther than America’s Interstate Highway System, which is suffering its own serious deferred maintenance. Fuel taxes, its principal revenue source, haven’t been raised since 1993. Yet Congress cannot agree on a solution, even as the Highway Trust Fund flirts with bankruptcy.
Given this anti-tax political environment, might a publicly owned, or even privatized, rail passenger system be likely to receive a significant boost in subsidies?
Consider: one aftermath of Hurricane Katrina was the end of intercity rail service between New Orleans and Jacksonville, Florida—an event of which most of the nation’s 319 million citizens remain unaware. Were the I-10 highway between those cities instead permanently closed, the national economic consequences and social disruption would dominate newscasts and the political theater.
Amtrak CEO Joe Boardman says lawmakers have a “moral obligation” to advance and fund public works projects that have been the foundation of America’s financial, cultural, and global strength. Yet an increasing number of voters have been sending Congress a different message.
In a Congress unable to agree on funding to prevent catastrophic closures of segments of interstate highways, expectations for increased intercity passenger rail funding must remain low—notwithstanding that all modes of transportation are to American economic prosperity what human arteries are to the heart.
Such is America, and Amtrak, in 2015.