October 01, 2012

The United States must back Amtrak to reap rail’s rewards

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ELECTION fever is currently sweeping the United States, and again one of the major rhetorical themes from candidates campaigning for the presidency right down to the local city council is the conundrum of small versus big government.

Inevitably this means that Amtrak, the United States' government-funded long-distance passenger operation, is coming under the spotlight, and being criticised for its apparent "wastefulness" and drain on the public purse.

House Transportation and Infrastructure Committee chairman Mr John Mica, a Republican from Florida, is at the forefront of what has he reportedly described as a "holy jihad" against wasteful spending by the national passenger rail service. This is currently being played out in a series of hearings in the House which have so far focused on "the monopoly mentality" of the operator, "41 years of tax payers' subsidies" and "Reviewing Amtrak's Operations." Three more hearings are expected to take place in the "lame duck" session of Congress following November's election before the new Congress convenes in January.

Mica makes no secret of his disdain for Amtrak. He has consistently blasted the operation during his tenure as the committee chief, labelling it as a "Soviet-style" railway and highlighting at every opportunity Amtrak's cost to the taxpayer. He even visited a Capitol Hill McDonald's restaurant in a recent campaign stunt to demonstrate that its fast-food cheese burgers cost substantially less than Amtrak's. Amtrak pays a $US 6.15 subsidy paid for each cheese burger that it sells and has accrued an overall food and beverage service loss of $US 833m in the past 10 years.

The ridiculous rhetoric and publicity stunts aside, at the heart of Mica's campaign to squeeze funding from Amtrak is his insistence that the private sector could do a better job.

In the "monopoly" hearing on September 11 he referred to Keolis (incidentally the international commercial arm of the state-owned French National Railways) which operates the Virginia Railway Express (VRE) commuter rail service linking Fredericksburg and Manassas with Washington, DC. A house report presented during the hearing found that VRE has improved its on-time performance by 10% to 98% and increased daily ridership to 22,000 since Keolis took over the service from Amtrak in July 2010 after bidding $US 24.5m less than the previous contract.

The report does not restrict itself to Virginia. Seven commuter rail agencies across the US which have switched to private operators were found to have saved $US 107.8m overall, or 11.5%. And with the screw set to be tightened next year when states will be expected to pick up 100% of the operating and capital costs for their state-supported routes at an estimated added expense of $US 125m per year, including $US 10m in Virginia, Mica declared that the private operators' success shows that "Amtrak needs to get out of the commuter rail business."

Mica's ultimate target is to privatise long-distance operations on the Northeast Corridor (NEC), North America's most important passenger railway, a goal apparently shared by Republican presidential candidate Mr Mitt Romney. Romney has said that he places Amtrak with other disposable programmes he would like to cut, including contributions to PBS (publically funded television), the National Endowment for the Arts, and the National Endowment for Humanities. The Republican Party even included a platform for the elimination of Amtrak's annual fund at its recent party convention.

Countering these goals, Democratic members of the committee have criticised the price increases that would follow a privatisation and the impact it would have on railway pension funds. They also condemned Republicans for apparently excluding them from the details of the regional rail service report. Likewise Amtrak also pointed out in a statement following the hearing that its bids for regional services "are often more expensive because, by law, we must maintain $US 200m liability insurance, something that private operators are not required to do." Private operators can also underbid to win a contract, which Amtrak cannot do because it is forbidden to use federal funds to cross-subsidise commuter rail agencies.

The political uncertainty surrounding Amtrak which seems to rear its head every election season must leave its president Mr Joseph Boardman and his contemporaries feeling like they are banging their heads against a brick wall. On the one hand they have put together an ambitious 30-year enhancement plan for the NEC (IRJ September p 107) which would provide the improvements in capacity required to meet projected demand, while on the other they continue to battle to secure the essential annual federal government funding that supports their very existence.

In 2012-13 Amtrak is receiving $US 1.8bn from the federal government, which was an increase of $US 400m from 2011, with the extra funding intended for capital improvement projects, but still well short of the $US 2.1bn it requested. With this funding shortfall, services will not be improved as much as Amtrak would have liked to meet demand, and with its services currently more popular than they have ever been, passengers are being turned away when trains sell out. It has reported 11 consecutive monthly ridership records this year, including July which was its best ever month. Total ridership has increased 3.4% in the first 11 months of 2012, and the railway expects to beat 2011's ridership record of 30.2 million passengers when it reports its annual figures following the end of the financial year on September 30.

Responding to claims over its perceived wastefulness on September 16, Boardmann told the committee that when revenues the railway generates from other activities are taken into account, these cover 85% of its operating costs, which he says is value for money given the public demand for use of its services. "That's less than the cost of a small cup of coffee at the Starbucks in Washington's Union Station. And the longest line in Union Station these days isn't for Starbucks, but rather to board our trains," Boardmann said.

Despite these promising figures, the quality of Amtrak's service, particularly on its long-distance routes, still leaves a lot to be desired. Taking a long-distance Amtrak train outside of the NEC is frankly a gamble if you want to get to your destination on time. With freight services taking priority, delays are frequent, particularly on the busier freight routes where passenger trains are often looped for passing freight trains, ruining timetabled operations.

Inevitably the cost:revenue ratio varies on these routes. Estimates place the NEC at 88c of costs for every $US 1 in revenue, while regional costs $US 1.30, and long-distance services cost $US 2.09. In order to be competitive, Amtrak and passenger rail infrastructure as a whole clearly needs a major cash injection from the federal government to bring it up to standard. Mica regularly slams the federal government's $US 40bn spending on the national passenger operator over the past 41 years but this is a pittance compared with the overall federal budget of $US 3.7 trillion and allocations to road infrastructure. The treasury has allocated $US 53.3bn from its general fund in the last four years alone to bail out the Highway Trust Fund, which as Boardman pointed out during the "operating hearing," is "almost 30% more than the total federal expenditure on Amtrak since 1971."

Investments in improving railway infrastructure such as the high-speed corridor scheme touted by the Obama administration would create new American jobs, another major theme of the election, as the stimulus projects on the NEC, in Illinois and Michigan are already proving. However, this requires long-term planning and a commitment to continue the programme beyond the life of one government. In today's polarised landscape where policy suggestions from one side are immediately dismissed by the other, achieving such a consensus is extremely difficult.

Mica and his small-government minded Republican colleagues certainly appear to be leading the debate at the moment, at least in gaining headlines. And while it appears unlikely that privatisation will happen any time soon, it will continue to be an attractive option to politicians for a long-term loss-making venture like Amtrak, particularly during a time of austerity.

In the whole scheme of things, though, the impact Amtrak spending has on the overall economy is a mere drop in the ocean. Defense and healthcare spending are the major drains on the American economy which are continuing to hinder its recovery from the economic crisis of 2009. This is not to say that Amtrak's finances should not be scrutinised, but rather than wasting time and energy on the cost of its burgers, if more attention was placed on how higher annual subsidies and increased investment would enable Amtrak to realise its vision for the northeast and elsewhere, improvements in reliability and the competitiveness of its services would be realised. This could conceivably lead to an increase in revenues to further reduce its 15% margin to the point where it might even turn an overall profit.

At this point privatisation would be a far more attractive and potentially lucrative option for the federal government, and potentially to the passenger as several companies compete for their business. As it stands attracting private capital to invest in a system which in some areas is extremely unreliable and uncompetitive with other modes would be difficult, if not futile. Also effectively forcing Amtrak to retain loss-making long distance services while profitable NEC paths and regional services are auctioned off could place the operator in an even deeper hole and potentially threaten the future of these cross country trains.

If the federal government puts its money where its mouth is and follows the example of other countries in supporting their national railway, which is clearly a service that is in demand and has great prospects for future growth, then Amtrak might be allowed to flourish. But by refusing to invest in Amtrak and rail infrastructure to improve the quality of service, despite record demand, and then repeatedly kicking it when it is down to score cheap political points, Amtrak has little chance of fulfilling its potential.

Kevin Smith

Kevin Smith joined IRJ in 2009 as features editor and since then has travelled the world reporting on developments in the world's railways. Before joining IRJ, Kevin worked for several local newspapers in the United States and as a freelance technical writer for a university engineering magazine. Kevin graduated with a first class honours degree in American Studies from Lancaster University, Britain, in 2006, and with a Master's degree in American Studies from Purdue University, United States, in 2008.

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