Private
passenger rail service thrived in the United States between the mid–19th
century and the early–20th century. By the late 1950s, however, passenger rail
was struggling because of the rise of automobiles, buses, and airlines.
Railroads faced large tax, regulatory, and union burdens not faced by other
modes of transportation. The Interstate Commerce Commission micromanaged
the railroads and prevented them from cutting excess costs. Railroads also paid
heavy property taxes, and the federal government imposed a special excise tax
on rail tickets from the 1940s until 1962.
After
a number of major railroads, including Penn Central, went bankrupt, Congress
stepped in to take over passenger rail by creating Amtrak in 1970. Amtrak is
structured like a corporation, but the government owns virtually all the stock.
It was supposed to become self-supporting and begin earning profits after a
transition period. But it has never earned a profit and has consumed more than
$40 billion in federal subsidies over four decades. In 2014 it had revenues of
$3.2 billion and expenses of $4.3 billion, and it received direct federal
subsidies of $1.5 billion.
Amtrak
has many woes. Its operations are so inefficient that it even loses tens of
millions of dollars a year on its food service. Amtrak's on-time service
performance is poor. For the overall system, only about three-quarters of
Amtrak's trains are on time, and its long-distance routes have a particularly
bad record. The entire Amtrak system accounts for only a tiny fraction of
America's passenger travel.
Amtrak
has an expensive and inflexible workforce. It has 20,000 employees earning an
average $105,000 a year in wages and benefits. The company pays a huge
amount of overtime, a substantial amount of which seems to be unnecessary and
improper. More than a dozen collective bargaining agreements cover 86
percent of the workforce.
Unions
undermine efficiency by protecting poorly performing workers and pushing for
larger staffing levels than required. They resist innovation and create a more
rule-laden workplace. Former Amtrak head David Gunn complained that at Amtrak's
maintenance facilities, workers from different unions were not allowed to share
work on projects outside their narrowly designated specialties.
With
a rail system plagued by late trains and endless losses, Amtrak's management
has been subject to much criticism. Over the years, federal auditors have
charged Amtrak with a lack of strategic planning, inefficient procurement
policies, weak financial management, and insufficient
accountability. Auditors found that the company manipulated its financial
statements to obscure unfavorable data.
However,
most of Amtrak's problems are created by Congress, which prevents the company
from making rational business decisions. In particular, Congress insists on
supporting an excessively large nationwide system of passenger rail that does
not make economic sense. Nor does it make environmental sense for Amtrak to run
many routes that have low ridership.
Amtrak
operates 44 routes on 21,000 miles of track in 46 states. Amtrak owns the
trains, but freight rail companies own about 95 percent of the track. A 2008
analysis by the Pew Research Center found that the system loses money on 41 of
its 44 routes, with an average loss per customer of $32. A 2012 analysis
by Randal O'Toole found similar results — only four Amtrak routes earned an
operational profit. Some Amtrak routes lose hundreds of dollars per
passenger and fill less than 40 percent of the seats.
The
few routes that earn a positive return are in the Northeast, whereas the
biggest money losers are the long-distance routes, such as New Orleans to Los Angeles.
The
Government Accountability Office (GAO) found that the long-distance routes
account for 15 percent of Amtrak riders but 80 percent of its financial
losses. In sum, Amtrak spends a lot of money maintaining high-loss routes
at the expense of routes with heavier traffic.
Privatization
would increase rail efficiency and bring costs down. A private rail company
could prune excess workers, base worker pay on performance, and end harmful
union rules. It could close the routes that are losing the most money.
Passenger rail makes sense in the Northeast corridor between Boston and
Washington, D.C., but that corridor accounts for less than 500 miles within a
21,000-mile system.
Other routes may also make sense within a lower-cost
privatized system. A privatized Amtrak could close the most uneconomic routes
and shift investment and maintenance efforts to the core routes to improve
service quality.
Reforms
abroad show that privatizing passenger rail works. In a 2004 book, rail expert
and former Amtrak spokesman Joseph Vranich counted dozens of nations that had
either partly or fully privatized their passenger rail systems. He found that privatized rail systems generally provide
better service, increased ridership, and more efficient operations.
In
the United Kingdom, rail privatization brought entrepreneurial innovation to
the industry. Vranich noted that "private operators have demonstrated more
initiative, imagination, and visionary planning than state-run British Rail did
in its prime or Amtrak does today." As already discussed, British
rail ridership more than doubled in the 20 years since privatization, from 740
million passenger trips to 1.5 billion, far surpassing growth elsewhere in
Europe.
Japanese
rail privatization provides useful lessons as well. In the 1980s, Japanese
National Railways (JNR) was stagnating as a result of bloated labor costs,
labor strife, and political manipulation. The government-owned JNR was
"conservative, indolent, and fearful of change." The government
broke up JNR into six regional and vertically integrated passenger rail
companies in 1987, then started privatizing them in the 1990s. The JNR
companies reformed their rigid union rules and slashed their workforces by
roughly one-third following the reforms.
A
National Bureau of Economic Research study found that labor productivity in the
Japanese passenger rail companies increased, on average, about 50 percent with
the restructuring and privatization of the 1990s. It also found that
accident rates were cut in half. The study concluded, "The Japanese
approach to rail restructuring has succeeded in many ways, by improving
productivity, cutting operating deficits, decreasing fares, and providing
better services."
The
privatized Japanese rail companies still receive subsidies, but they are more
efficient than before and provide better service. Vranich called the results of
JNR's privatization "stunning." Like Japan, the United Kingdom
has continued to subsidize rail infrastructure after privatization, but the
subsidies are less than elsewhere in Europe. The important thing is that the
system is much more efficient, and ridership has soared. So while subsidies
should be ultimately eliminated, the first job is to fix the rail system's
institutional structure by privatization.
A
Canadian example also illustrates the power of privatization. In 1990, the
government-run passenger rail company, Via Rail Canada, was losing money and
canceling services. Fortunately, an entrepreneur stepped in to run the routes
through the Rocky Mountains. Today, the Rocky Mountaineer Company operates four
hugely successful routes in western Canada. Travel writers and international
tourist organizations laud the services.
The
United States has its own positive experience with rail privatization — freight
rail privatization. When the Penn Central Railroad collapsed in 1970, it was
the largest business failure in American history to that date. Other railroads
followed it into bankruptcy. Congress created Conrail in the mid-1970s to
replace the failed private railroads. The government-owned company consumed $8
billion of subsidies and floundered until Congress finally deregulated freight
rail under the Staggers Rail Act of 1980. Deregulation allowed Conrail to
become profitable, and it was privatized in 1987. Since then, U.S. freight
railroads operating in a deregulated environment have been a dramatic success.
Rail's share of total U.S. freight has increased substantially in recent
decades.
Leading
rail experts, including two former champions of Amtrak, support privatizing the
company. Anthony Haswell founded the National Association of Railroad
Passengers in 1967 and is referred to as the "father" of Amtrak. He
lamented, "I feel personally embarrassed over what I helped to
create." And Joseph Vranich, the former Amtrak spokesman, came to
recognize that the government-run system was a mistake:
Amtrak
is a massive failure because it's wedded to a failed paradigm. It runs trains
that serve political purposes as opposed to being responsive to the
marketplace. America needs passenger trains in selected areas, but it doesn't
need Amtrak's antiquated route system, poor service and unreasonable operating
deficits.
Amtrak
supporters argue that since other modes of transportation receive subsidies, so
should passenger rail. But Amtrak currently receives vastly more subsidies —
measured by subsidies per passenger mile — than other modes of transportation,
including automobiles, buses, and aviation. Automobiles receive relatively little in net
subsidies because government highway spending is mainly covered by fuel taxes.
That said, subsidies to all modes of transportation should be cut.
The
problem for passenger rail is not that it needs more subsidies, but that
competitors to rail have become much more efficient. Real rail prices have
risen in recent decades, while real airline prices have plunged because of the
deregulated and competitive airline environment. Intercity bus prices have
also fallen with the rise of low-cost firms such as Megabus. To tackle air and
bus competition, rail needs to be moved to a similarly private and deregulated
environment.
Amtrak
supporters say that we should subsidize passenger rail to reduce energy
consumption and help the environment. But intercity buses are more energy
efficient than trains, and thus better for the environment. And, as
already noted, running half-empty trains over Amtrak's long-distance routes is
a waste of energy.
It
seems unlikely that passenger rail will play a big role in America's
transportation future. Today, rail carries very few people compared with
automobiles and airplanes. Even a high-speed rail system in the Northeast would
reduce automobile use in that region by less than 1 percent, according to a
Department of Transportation study.
But
who knows? Maybe that assessment is wrong. Perhaps entrepreneurs could bring
enough cost cutting, flexibility, and innovation to passenger rail that it
could become financially viable in numerous U.S. corridors. We will never know
unless we free passenger rail from the government.
Norb
Leahy, Dunwoody GA Tea Party Leader
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