The Magazine


Will Congress keep bailing out a failing railroad?

Dec 24, 2001, Vol. 7, No. 15 • By STEPHEN MOORE
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IF YOU THOUGHT the $15 billion airline bailout bill was a bloated corporate welfare handout, wait till you see what Congress has planned for Amtrak. In the wake of September 11, with the airlines in precarious financial condition, the government-operated passenger rail service is now regarded on Capitol Hill as more vital than ever. Amtrak management has rushed a 10-year, $70 billion bailout request to Congress. That's about as much money as it took to put a man on the moon. Despite the ludicrous price tag, House Transportation Committee chairman Don Young, the Alaska Republican, has already given the rail loan scheme a thumbs up.

Democrats, meanwhile, are even more eager to throw money at Amtrak--and its 26,000 union workers. The Senate Democrats' original bill included $9 billion in immediate emergency loans to Amtrak. This would be the largest single infusion of federal funds ever to Amtrak. If you're wondering how this money found its way into an economic stimulus plan, well, it's no more preposterous than the $220 million earmarked for pumpkin growers, cauliflower producers, and bison ranchers that Senate Majority Leader Tom Daschle has sought.

Amtrak's friends and foes alike agree that the train service is in horrid financial shape. Even though ridership is up 15 percent since September 11, Amtrak is burning money faster than ever. For every dollar it collects in ticket fares, it incurs almost $2 in costs. Earlier this month, Amtrak's independent oversight council declared that at its current rate of losses the railroad will be insolvent by late next year. To avoid Chapter 11, Amtrak will need an additional $280 million in operating subsidies from taxpayers in 2002, which is a mere fraction of the estimated $10 to $20 billion Amtrak needs to modernize its trains and tracks.

Things weren't supposed to turn out this way. Five years ago, congressional Republicans commanded Amtrak management to wean themselves off taxpayer subsidies. Under the gun, Amtrak supporters promised that the rail service would break even by 2002. At the time, this plan seemed to have a plausible chance of succeeding.

No more. Amtrak's latest round of financial woes proves that the railroad's financial independence plan is a hopeless sham. For at least five years, Amtrak officials have doctored the books by delaying billions of dollars of capital expenditures to pay their mushrooming operating costs. What is doubly infuriating is that in the new, post-September 11 environment of extravagant, industry-wide bailouts, loans, and insurance subsidies, Amtrak's supporters no longer even bother pretending that the railroad will ever be able to roll on its own four wheels. Congress has arrived at a crossroads with Amtrak: Come up with a rational plan to cut Amtrak loose once and for all, or commit to a future of roughly $2 billion in annual taxpayer subsidies from now until kingdom come.

What seems clear from this latest financial mess is that costs will continue to soar as long as the government owns Amtrak. Thanks to layer upon layer of duplicative management and an inability to fire unproductive workers, Amtrak's employee productivity rates are only about one-fifth the level of the airlines (who are notorious for their own lack of productivity).

Another problem is that political considerations prevent some of Amtrak's most hopelessly unprofitable routes from being shut down. Many long distance trips (New York to Los Angeles, for example) carry a $500 per passenger subsidy. Over the past decade, every time an Amtrak passenger has boarded a train, it has cost taxpayers between $50 and $100.

Amtrak's latest scheme is to bet the house on high-speed rail service, which it hopes will entice millions of Americans back on board trains. But so far, high-speed rail appears to be merely the transportation equivalent of recent taxpayer-subsidized sports stadium boondoggles. One of the country's foremost experts on high-speed rail is Andrew Selden, vice president for law and policy at the United Rail Passenger Alliance, a group that supports rail service but believes Amtrak is crippled by management stupidity. Selden provides compelling evidence that high-speed rail, rather than being Amtrak's fiscal salvation, is turning out to be a financial black hole, particularly along the Northeast corridor.