Privatization Might Save Passenger Rail

An Amtrak train arrives in East Lansing on November 16. The Chicago to Port Huron line, which runs through East Lansing, is far from profitable.

The airport shutdowns and fear of flying that followed the Sept. 11 terrorist attacks gave Amtrak a surge in ridership, especially in America's northeast corridor. The nationalized passenger railway responded by running more trains to carry more passengers. But Amtrak is still in terrible economic shape. In fact, on November 9th the Amtrak Reform Council, established by Congress in 1997 to monitor the railroad's financial performance, found that Amtrak will not meet its congressionally-established deadline to break even in its operating budget next year. The Council now is required to submit to Congress within 90 days a plan to reorganize Amtrak so that it will be able to run profitably, and Amtrak itself must submit a plan for its own liquidation. Congress will then decide Amtrak's fate.

But because it is government-owned and operated, Amtrak has no way of responding to public demand the way a private company could, i.e., in a way that would make it profitable. It can only lose money. In fact, since its creation by Congress 30 years ago, Amtrak has received nearly $25 billion in taxpayer subsidies, with no prospect that it will ever break even.

While this might seem like a reason to consider privatization, Congress is currently proposing to throw billions of dollars in new subsidies at Amtrak. The railway has requested $3.2 billion in "disaster aid" even though it has experienced no disaster. Unlike the airlines, which lost customers, Amtrak gained them. As one congressional aide told Reuters, "Amtrak's agenda, as usual, is capitalizing on [the attacks] in a bogus way."

In three decades, Amtrak has been unable to tap into a substantial enough slice of the travel market to justify its existence. While in 2000 Americans made 665 million trips by air, they only made 22.5 by Amtrak, a mere 1 percent of passengers nationwide. Amtrak's punctuality on most routes is terrible, and it covers up this fact by monitoring at a limited number of stops and by scheduling lots of extra time between those stops.

The trains themselves are substandard. Many run far slower today than did trains on the same routes earlier in the 20th century. And Amtrak uses what can charitably be called "creative accounting" to disguise its financial problems. It receives many subsidies from government agencies and has recently abandoned standard accounting practices to hide operating expenses as capital costs.

And costs are rising faster than revenues. U.S. Department of Transportation Inspector General Kenneth M. Mead told Congress in July that "Amtrak's fiscal year 2000 operating loss of $944 million, including depreciation was $28 million more than its 1999 loss and the largest in Amtrak's history. . . . The picture remains bleak into 2001, where in the first eight months revenues grew by $15 million over the same period a year earlier but cash expenses grew by $53 million. Moreover, as of Sept. 2000, Amtrak's long-term debt and capital lease obligations totaled $2.8 billion, an increase of $1 billion over 1999."

Secretary of Transportation Norman Mineta simply anticipated the Reform Council's finding when he stated in June 2000 that he does not think Amtrak will meet that self-sufficiency deadline.

Although liquidation might seem extreme, let's face the matter squarely: If America needed the passenger train service provided by Amtrak for three decades, the venture would have succeeded. But government planners' judgment as to what the public desires or needs was substituted for the efficiency of the free market, with the usual consequences-and the usual delay in recognizing failure. It would have been far less expensive-and perhaps profitable, in fact-to leave the market to handle passenger rail service in the first place.

Alternatives to Amtrak do exist. Virgin Rail in Great Britain has taken over lines from British Rail, sparking a passenger rail traffic boom far surpassing anything in Amtrak's history, and has placed a $3 billion order for new trains, the largest-ever train order in Britain's history. In Japan, privatization has reinvigorated development efforts, and the new railways have designed more experimental trains using more advanced technology than the old national railway would have. Around the world, no fewer than 40 nations are replacing Amtrak-style nationalized railways with franchised private operators, by selling publicly owned rail assets to private interests.

America may wish to do the same.

Editor's Note: A version of this article appeared in National Review Online Oct. 26, 2001.

Joseph Vranich, a former spokesman for Amtrak, served on the Amtrak Reform Council from February 1998 to July 2000. He has also served as president and CEO of the High Speed Rail Association and executive director of the National Association of Railroad Passengers.

Edward L. Hudgins is director of regulatory studies at the Cato Institute in Washington, D.C.