Consider This a Warning: Government Programs Wasting Your Money: Part 1 Amtrak

Thomas Warns*

In 1970, Congress passed legislation which took over the intercity passenger rail service that had been formerly operated by private companies but were in decline due to America’s love of the automobile and expanded air travel. Amtrak began service in 1971, and continues operating to this day, serving over 500 communities. Amtrak trumpets that ridership is growing every year, and that during fiscal year 2012, 31.2 million people rode on Amtrak.

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But the financial picture is not so rosy. Their finances are so messed up that Amtrak’s own website proudly boasts that they managed to pay 88% of their operating costs with the money they collected from passengers; in other words admitting that they still lose money (and apparently consider that to be a success). Of course, Amtrak also has other financing and investment expenses beyond mere operating costs (think buying new trains and improving the existing track), so they aren’t even close to paying off 88% of their total costs. In 2012, Amtrak received an appropriation of $1.4 billion from Congress in order to pay off their expected losses. The Northeast Corridor Route, running from Boston, through New York, to Washington, is the only route that turned a profit comparing revenues to operating costs (once more excluding other costs which might send that line into the red as well).

Amtrak of course would boast that their service helps to relieve congestion on the roadways and helps reduce greenhouse gas emissions, but their success in doing so is negligible. The 31.2 million riders figure computes to just 85,000 riders per day, nationwide, which fails to have a substantial or appreciable effect on travel. Compare this to the airline industry, which can pride itself on its annual domestic ridership of over 650 million, or 1.8 million fliers per day. And of course if energy efficiency were the ultimate goal, buses are much more efficient than Amtrak. The astute reader will object that these rival forms of transportation also receive government subsidies, however the amounts aren’t even close: Amtrak receives $46.33 per passenger, aviation $4.28 per passenger, and intercity buses a mere $0.10 per passenger.

Perhaps one of the most embarrassing examples of waste and mismanagement is the fact that Amtrak has lost $883 million over the last ten years just from food sales. Apparently even having a captive dining audience wasn’t enough for Amtrak to make money from their food sales, and rather than change up the menu they continued to sell hamburgers which cost $16.15 to make per hamburger for only $9.50 to the customers. Meanwhile, Amtrak asked for an additional $150 billion in order to provide faster trains on the Northeast Corridor, when they could serve the route faster at no additional cost by cutting unnecessary stops between the major cities.

Amtrak’s failures are to a large extent political. Rent-seeking politicians prevent Amtrak from achieving profitability by reducing or cutting out altogether service to out of the way stations that have no economic viability whatsoever. The fact that the Northeast Corridor makes money proves that there is the potential for railroads to serve some customers profitably with intra-regional, intercity train lines; operating lines national lines from Chicago to Los Angeles is unnecessary and wasteful. While a 43-hour, $169 train ride does sound nice, any one that hasn’t lost their marbles would opt for a four-hour, 25 minute flight from O’Hare to LAX starting at $109 on most of the major airlines.

So what is the solution? Ideally, the U.S. should sell off all the assets of Amtrak, and watch free market forces work. Amtrak is emphatically not a public service like water or electricity companies, which are operated by state-owned monopolies (in most cases). It is a federally chartered corporation, with the federal government as a majority stockholder, and operated as a for-profit (in theory) company, not a public authority. It has become a failing business which competes for customers with other private modes of transportation that are doing better but still struggling to squeeze out a profit (especially the airline industry, which has undergone numerous mergers and bankruptcies).

The Northeast Corridor would likely earn the United States a hefty sum at the chopping block from investors who want a piece of Amtrak’s only profitable operation. Other routes could be practically given away, since their continued operation only loses the United States money each year. Smaller state-run routes utilizing private contractors have operated with significantly reduced labor costs on shorter rail lines, forecasting possible successful for some of the privatized lines. Because intercity bus routes and airplanes connect the country, small towns with Amtrak stations would not be cut off from the rest of the country, as some have warned, if the lines cease service altogether.

Shifting some of Amtrak’s costs to the states, as Congress has mandated, is not much of a solution. The law makes the federal government’s books look a little better, but taxpayers are still paying for Amtrak – now through taxes at the state and federal level. You can bet that politicians will waste our time in the future arguing over which level of government will tax you in order to prop up Amtrak, instead of trying to get another liability of minimal value off the books.

Ultimately, rail service should be allowed to live or die in the United States based on the viability of its technology, the ingenuity of its managers and owners, and the desires of American travelers.  Perhaps the elimination of subsidies for other modes of transportation as well would help level the playing field for all players. Constant subsidies and bailouts driven by political motivations only block efforts at consolidation and rationalization within a market. It is madness to tax Americans in order to prop up a failing for-profit corporation (it’s almost like a once-a-year bailout) which does not provide an essential public service. Further funding for Amtrak will only derail efforts at reducing the deficit, and prevent more efficient private operation of the rail lines. And thankfully, privatization will mean no more taxpayer-funded hamburgers on the train.

*Thomas Warns is a J.D. Candidate, class of 2015, at NYU School of law, Staff Editor on the Journal of Law & Liberty , and author of the weekly column "Consider This a Warning."