Amtrak - A National Hazard At Any Speed

Submitted by David Stockman via Contra Corner blog,

This week’s tragic accident in Philadelphia should be a reminder. The real train wreck is Amtrak itself—–a colossal waste of taxpayer money and the very embodiment of what is wrong with state intervention in the free market economy. Worse still, the pork barrel politics which drive its handouts from Uncle Sam virtually guarantee that as time goes on Amtrak will become an increasing hazard to public safety, as well.

It seems like only yesterday, but one of my first assignments as a junior staffer on Capitol Hill was to analyze the enabling legislation that created Amtrak in the early 1970s. I was working for an old fashioned conservative Congressman and his first question was “how will it ever make a profit when we are running the trains from the Rayburn Building?”.

He couldn’t have been more clairvoyant. While it sponsors claimed Amtrak would be spewing black ink by 1974, the answer to my boss’ question was simple: never!

But you didn’t need to wait 43 years to prove it. There is not even a remote case that subsidizing intercity rail travel is a proper or necessary function of the state. Amtrak accounts for well less than 1% of intercity passenger miles. On every one of its 44 routes there are bus and air travel alternatives, and that is to say nothing of automobile travel —-  in cars with drivers today or in the driverless kind tomorrow.

Moreover, the evidence overwhelmingly shows that passenger trains will never be economically competitive outside of a handful of densely populated corridors. By contrast, what was absolutely guaranteed from day one back in 1970 is that a government controlled passenger rail system crisscrossing the United States would become a monumental Congressional pork barrel—–an endless rebuke to rational economics.

And that it has. The cumulative taxpayer subsidy since 1972 totals more than $75 billion in dollars of today’s purchasing power. During the span of nearly a half century, Amtrak has operated upwards of 40 routes that have never, ever made even an “operating profit”.

Yet the operating profit test is itself a red herring. Like its aviation competitor, Amtrak is massively capital intensive.  It maintains 21,000 miles of track, 100 rail stations, operates around 2,500 locomotives and passenger cars, and requires an extensive, costly infrastructure of communications and signaling systems, electric traction networks and a huge array of bridges, tunnels, switching yards, repair facilities, fencing and other right-of-way improvements and ancillary buildings. On a replacement basis, its entire capital asset base would easily amount to $50 billion (about $40 billion of track and infrastructure and $10 billion of rolling stock).

And that giant figure underscores the economic part of the Amtrak hazard. Even with a generous assumption that the useful lives of its equipment, rolling stock and infrastructure would average 25 years, Amtrak’s economic depreciation would amount to $2.0 billion per year. Since it generates roughly 8 billion passenger miles annually, this means that its capital consumption expense amounts to about 25 cents per passenger mile.

So here’s the thing. The average airline fare in the US is about 15 cents per passenger mile and the average bus fare is about 11 cents per mile. Now how in the world does it make sense to operate a lumbering passenger rail system in which the true economic cost of its capital assets alone is 65% to 130% higher than the profitable fares charged by the perfectly adequate and available alternative modes of transportation?

Stated differently, you are deep in the hole before you start  even one Acela train on its route between Washington and Boston or one long distance train, for example, on its 1,750 mile route between Chicago and Los Angeles. But in the operations department it goes without saying that Amtrak —– burdened as it is with its endless array of Congressional mandates and directives —– is not exactly a model of efficiency or financial discipline.

Thus, Amtrak’s fully loaded wage and benefits tab is about $2 billion per year and is spread over 20,000 employees. Needless to say, at $100,000 per employee Amtrak’s costs are not even in the same zip code as its far more efficient for-profit competitors in the airline and bus transit industries.

On top of its massively bloated and featherbedded payroll, Amtrak also generates another $1.3 billion of expense for fuel, power, utilities, supplies, repair parts and operational and management overheads. Accordingly, its total operating budget at $3.3 billion amounts to about 40 cents of expense per passenger mile. That is, its operating costs are 3-4X the ticket price of its air and bus competitors!

The economic arithmetic is thus insuperable. On a system-wide basis, Amtrak’s combined capital and operating expense would amount to about 65 cents per passenger mile if it were honestly reckoned. That is, in the absence of Federal and state subsidies and the implicit subsidies that private railroad companies transfer to Amtrak via deeply below-market fees for utilization of their tracks and facilities. Indeed, 95% of Amtrak’s route-miles and 70% of its passenger-miles are generated on lines leased from freight railroads, which—-owing to regulatory mandates—-Amtrak pays only a trivial 2 cents per passenger mile. This figure is not remotely reflective of the real economic costs.

By contrast, Amtrak’s ticket revenues amount to hardly 30 cents per passenger mile. So contrary to Amtrak’s claim that it has nearly reached break-even, its true economics reflect the very opposite. Namely, a giant political pork barrel in which system revenues cover less than 45% of its all-in economic costs to society.

Nor can this disability be remedied by reforming the system and paring back its routes to just the profitable corridors. Even the northeast corridor generates only 10 cents of “operating profits” per passenger mile. Throw-in the capital costs and even Amtrak’s so-called profitable lines are still deeply underwater.

To wit, a recent inspector general report estimated that the replacement cost of the northeast corridor infrastructure alone was about $15 billion, which would amount to $400 million per year on an amortized basis or 20 cents per passenger-mile. Add in another 5 cents per passenger-mile for locomotives and rail cars and you have 25 cents of capital costs.

So there is a reason why even the northeast corridor has never been privatized. It would lose at least 15 cents on each of the 2 billion passenger miles that Amtrak/northeast corridor generates annually in the absence of much higher fares.

And those are the baleful facts regarding the Acela and regional routes in the Washington-Boston corridor. The rest of the system embodies just plain economic waste. The aforementioned Chicago-Los Angeles route, for example, has operating costs of 35 cents per passenger mile; and total costs with capital consumption would be at least 50 cents per mile–even giving allowance for the lower capital intensity of long distance routes.

The problem is that you can get an airline coach fare today between the Chicago-Los Angeles pair for $200 or 11 cents per mile. And you don’t need to spend 22 hours on the train, either.

As it is, Amtrak’s current fare on this route is about 15 cents per passenger mile and apparently it cannot go much higher if it wishes to remain competitive with air. Yet why in the world should bus drivers in Minneapolis pay Federal taxes in order to provide what amounts to a $600 subsidy per ticket on the 180,000 tickets that are sold annually on the Chicago-Los Angeles route? And the latter is only typical of most of the other routes outside the northeast corridor.

Obviously, there is no means test to get a $600 subsidy from Amtrak, or any other plausible criterion of public need. Like so much else which emanates from Washington, these Amtrak subsidies are distributed willy-nilly——in this case to retirees with enough time and money to see the country at leisure or to people with fear of flying who don’t wish to drive.

So Amtrak is a white elephant as a matter of economics, but when it comes to public safety it is actually a wounded one. That’s because when push comes to shove and Congress is faced with limited budget headroom, it always elects to short change the capital budget rather than reduce the scope of Amtrak’s far-flung operations and eliminate any of the 44 routes which crisscross the nation’s congressional districts.

I actually learned that lesson during the so-called Reagan Revolution. My original plan was to eliminate Amtrak entirely, and it would have saved upwards of $60 billion in the decades to come. At the get-go, the Gipper was all for it. Not a proper function of government, he nodded.

Then his Secretary of Transportation and previously chief GOP fundraiser and governor of Pennsylvania explained that the Gipper was right—but not quite. The northeast corridor (NEC) routes were an exception. They provided a valuable economic function——so by paring the system back to these high density routes the Amtrak budget could be cut in half. Moreover, after some up-front capital spending, the NEC could be transformed into a profitable business and eventually sold to the private sector in an IPO. That’s just the thing, said President Reagan.

Then it got to Capitol Hill and the Republican politicians said we are all for cutting the Amtrak budget by 50%, but to get the votes we need to do it “our way”. Upon which the Gipper replied, yes, we are here first and foremost to shrink the runaway Federal budget——so do what you must to get those savings.

They did. They drastically pared back the capital budget and kept virtually all of the routes and operating subsidy costs in place. When Uncle Sam came up short, capital investment could be deferred, but the pork barrel had to be fed.

In the bye and bye, of course, Amtrak’s budget was restored  all the way back to Jimmy Carter’s “wasteful” levels and actually hit record amounts during the Republican government of 2001-2008. But even then there was never enough appropriations to keep this giant white elephant properly fed——so capital investment was perennially short-changed and the system’s fixed assets steadily deteriorated.

Whether this week’s disaster was human error or not, the larger certainty is that the system has been chronically starved of capital. But the solution is not for a bankrupt government in Washington to pour more money down the Amtrak rat hole in the name of “infrastructure investment”, as the big spenders are now braying in the wake of this week’s disaster in Philadelphia.

Instead, Amtrak should be put out of its misery once and for all. Otherwise its longstanding hazard to the taxpayers is likely to be compounded by even more public safety disasters like this week’s tragic event.

Comments

[Chuck Knoblauch]

Hire more engineers that speak English.

Make sure they know how to read track signals.

And tell the NSA to stop experimenting on train engineers.

[nostromo17]

The new Enging driven in the crash this week accelerates to 100 mph twice as fast as the engine it replaced...so Engineer not looking

probably he was speeding up to 50 mpr?

[Iam_Silverman]

Well, let's take the authors position logically through its entirety.  Amtrak is a waste because about 30% of its operating budget comes from the government (OK, taxpayers).  Buses and airlines can deliver you to your destination for less cost per mile.  So, the only logical thing to do is shut down our nations only operating passenger railroad system.  The Author pointed out all of the costs that Amtrak had to bear, including INFRASTRUCTURE costs.

Wait, you mean that the passenger railroad system has to maintain the tracks and stations that it owns?  Well, who maintains the airports and runways, the ATC system and assorted other piecemeal parts that that allow the airlines to operate at a profit?  Santa Clause?  Well, at least those bus companies were smart enough to build a national interstate highway system.  Oh wait - who paid for that?  Taxpayers?  Well, they at least pay to maintain them, right?

OK - lets get rid of every single part of our transportation infrastructure that has to be supported by taxpayer dollars.  Even that street in front of your house should be owned by a private company.  You should pay tolls directly to them, and trust that they will maintain it properly and enforce the speed limits and maintain the traffic signals.  Let's close every single airport today, lay off all of the government employees (federal and local).  The facilities should be offered to the airlines at fair market value.  They need to provide 100% of the staffing and pay taxes to the locality where it is sited.  I'm sure they can all work together to fund and staff the Air Traffic Control centers nationwide.  Once you remove all of the subsidies from commercial aviation, you will see it in about the same cost ration as rail travel.  If we make every road a toll road, then the buses will also have a very large subsidy removed.  Oh, and instead of providing them a counter at the big, shiny new intermodal center, boot them out and have them build and staff their own stations.  MegaBus uses just a sign post in most areas.  That's cutting out a lot of staffing and overhead!

Is passenger rail travel the most efficient mode for all areas of the United States?  Not by a long shot.  Does it work well enough in high density regions - you bet.  So why maintain a national network?  I don't know, do the millions of people that ride the long distance trains every year do so because they want to?  Probably.  In the last 10 years or so I have found it more relaxing to travel by some other means where I don't have to drive.  I was really enjoying travel by air until the TSA got out of control.  Now, it is no longer fun.  I usually drive, but we are experimenting with other modes now too.  MegaBus is not a bad choice.  Getting a sleeper for a long distance rail adventure ain't so bad either.  Those of you that haven't tried it should at least give it a shot before knocking it.

Now - about the crash.  It is a diversion, like Aurora and Sandy Hook.  The media outlets are just now starting to play up the "projectiles striking train cab windows" link now.  Yup, someone was shooting at three trains that night - all in the same area where the engineer suddenly accelerated after yelling over the radio that his cab was being peppered by gunfire.  The FBI has been called in to investigate too.  just like the short period after the current administration couldn't get any traction on gun control, those two mass shootings occurred.  Now, just weeks after the BATFE was thwarted in their attempt to ban SS-109 M855 penetrator ammo, we have someone trying to shoot through the hardened windows of passenger locomotives.  How convenient would that be for them to suddenly point out that is what the perpetrator was using - ammunition that they were trying to save us from just last month?  I know it sounds wacky, but starnger things have happened.  I am still amazed that an autistic teen with no combat training can have a higher kill ratio than a seal team (kills/shots fired) - nearly 100% by someone repulsed by loud noises - truly amazing!

[Tapeworm]

Many points covered well.

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 If you care to hear first rate assholes commenting on the wreck, you will need to listen to RT.

http://rt.com/shows/watching-the-hawks/258445-crash-philadelphia-us-infr...

 RT is fairly good on some things but these fools are clueless.

[OutaTime43]

I'm sure cutting funding is the right answer. Who needs a modernized rail system? Only chumps like China think that , right? Our rail system looks like it's in a third world country. Just like most of our infrastructure. To ignore that and pretend that investment isn't needed is what's really clueless.

[OutaTime43]

We need rail transport in this country. It will become even more important as fossil fuels begin to deplete. The answer sure as hell isn't privatization since the government still pays the bill. With privatization it goes to a private company so we pay cost + profit instead of just cost. It's not a cheaper solution by any means.

So, maybe we can put a few shekles of that QE handout to wall street and put it to something actually usefull...like modernizing our rail system for a future of greater fuel shortages.

[Nexus789]

You are right. I went through the privatisation of the power industry in the UK and some of the privatisations in Australia. It is the well organised theft of 'public goods' and the 'commons' – a further concentration of capital. The tactic seems to be to reduce investment and stir up labour issues to give the impression that only the private sector can run public entities.  None of the 'private' companies will take the risk in terms of building anything and will sweat the assets. For instance a power station operator will require long run contracts that remove all risk, plus government guarantees, they will use commercial money, etc. All together that will be more expensive and leach off the taxpayer. The US should consider issuing infrastructure bonds but that will never happen.

[Nexus789]

The decline of the railways in the US is the tip of the iceberg with respect to infrastructure decline across the US. No nation can function effectively if it's core services and assets start to collapse. Not only has the US lost manufacturing it will lose the ability to engineering and build as well. It will not be US companies bidding for construction jobs.