February 4, 2003

February 4, 2003 | Commentary on Smart Growth

How To Run A Railroad (Or At Least Amtrak)

Many wasteful government programs contribute to the growing federal deficit, but the king of them all is Amtrak.

The national passenger rail service incurs two dollars in costs for every dollar of tickets sold. Created in 1971 from a collection of ailing passenger-rail systems, Amtrak has never lived up to its promise of breaking even. Instead, it has plowed through about $25 billion in federal subsidies.

It gets worse: Amtrak's most recent annual reports reveal record losses-more than a billion dollars in fiscal years 2001 and 2002. In fact, in 2002, Amtrak experienced its first decline in passengers since 1996-despite an increase in security-check hassles at the nation's airports and congestion on the highways. Now Amtrak President David Gunn claims he needs $10 billion in federal subsidies over the next five years to continue operations.

Please. What Amtrak really needs in the next five years are new managers and a new attitude, not new money.

Amtrak's outgoing board missed an opportunity to put the system on a market-based reform path last May, when Gunn's predecessor resigned. Instead of appointing a reform-minded CEO, the board hired a replacement comfortable with its vision of a railroad that operates on the principles of monopolist socialism.

Amtrak's new management promptly made clear that it has little interest in even basic reform. For example, it firmly resisted calls to cut back or eliminate parts of its far-flung and underused route system. This despite the fact that every single one loses money, and some lose substantially more than others.

Amtrak's new management also expressed no interest in renegotiating the railroad's costly labor contracts. Amtrak's unionized workforce earns about 20 percent more than the unionized employees of airlines, and this gap is widening as troubled airlines renegotiate labor contracts to reduce costs and cut losses.

Finally, Amtrak's new management opposed contracting out any of Amtrak's work or services to private businesses that can do better work for less money. Although European and Asian railroads have successfully used competitive contracting and partnerships with private investors to remain viable, Amtrak's management appears to be unaware of this trend-despite critics' constant reminders that they try it.

"If they are serious [about making us compete] would somebody give me the plan?" Gunn said in an interview with London's Financial Times. "How are they going to do it?"

Well, not this way: Amtrak lost a competitive contract to operate part of the Massachusetts' commuter rail system in 1999. Amtrak's bid was $116 million more than the winning bid from a private firm. When that same contract came up for another bid in 2002, Amtrak elected not to compete for it. A French company, Connex, won the job. Perhaps Connex can tell Amtrak how to compete for-and earn-work.

If Gunn really wants to see a plan to make Amtrak pull its weight, he need look no further than The Rail Passenger Service Improvement Act of 2002, introduced last year by Sen. John McCain, R-Ariz. The bill lays out a five-year plan to restructure and gradually privatize Amtrak. They also could look up "Agenda 2003," The Heritage Foundation's new policy guidebook, at agenda.heritage.org. It offers several suggestions on how to improve Amtrak and other areas of transportation, including airports and highways.

Here's one way to jump-start the long overdue Amtrak reforms: The terms of four Amtrak board members expire in June. President Bush should replace them with people committed to market-based reforms, thus creating a majority on the seven-member board. Under current law, only one federal employee can sit on Amtrak's board. By tradition, it's been the Transportation secretary. But the president should not be hidebound in this regard. Rather he should appoint either the Treasury secretary or the director of the Office of Management and Budget, who can better speak on behalf of taxpayers whose sacrifice has kept this lead weight of a budget expense afloat for more than a generation.

At a recent Heritage policy forum, the World Bank's rail expert predicted that within a few years, the United States and Cuba would be the only two countries in the Western Hemisphere with a government-run passenger railroad. Most other countries are solving their costly rail problems through privatization, partnerships and competitive contacting. The United States can learn from their experience.

Ronald Utt, privatization czar during the Reagan administration, is now a senior research fellow at The Heritage Foundation (www.heritage.org), a Washington-based public policy research institute


About the Author

Ronald D. Utt, Ph.D. Herbert and Joyce Morgan Senior Research Fellow

Related Issues: Smart Growth