March 4, 2005

March 4, 2005 | Commentary on Smart Growth

VRE Needs Change, but it Doesn't Need Any More Taxpayer Dollars

Stafford County supervisors were exactly right when they recently rejected the Virginia Railway Express' request for another $95,000 to subsidize the system's operations next fiscal year.

And Spotsylvania County can hardly be blamed for refusing to support the service. However offensive their beggar-thy-neighbor approach to the service may seem, one can sympathize with their wish to avoid the fiscal flypaper VRE has become to the communities stuck subsidizing it.

As VRE's most recent budget proposal reveals, fares paid by its riders cover only a fraction of its costs, with the rest covered by multimillion-dollar subsidies from federal, state, and local taxpayers--mostly you and me.

For next fiscal year, VRE anticipates fares will cover only $19.9 million, or 41 percent, of its operating and other current costs, which it estimates will total $48.3 million. (We're excluding here its $7.2 million wish list of capital projects.) In other words, VRE and its riders are expecting taxpayers to kick in about $28.4 million in subsidies so that a tiny fraction--less than 1 percent of the adult population in the service area--can ride to work on the rails instead of by car, van pool, or bus.

When a passenger from Fredericksburg pays his or her $7.29 ticket (10-pass) to climb aboard the train, taxpayers kick in another $10.50 to finance that ride. And because morning riders come back in the evening, each Fredericksburg passenger imposes a daily cost of $21 on the community, the state, and the nation.

Counting new capital spending plans, VRE's fiscal 2006 budget will require $35.5 million in subsidies on top of the $19.9 million it expects from fares in order to operate and grow. Expressed another way, each VRE passenger will require a taxpayer subsidy of $4,481 per year to keep the system going and growing.

At that annual cost, taxpayers could lease or buy on credit a mid-priced car for every VRE rider, and government would still have millions left over for schools or tax relief.

This is not meant to pick on VRE's management or to suggest they are wasteful of public monies that could otherwise be spent on libraries or other transportation projects. A job is a job, and they are probably doing as well as they can in applying a mid-19th-century technology to 21st-century needs.

But as one might suspect of an obsolete service in a modern world, this antiquarian exercise is exceptionally costly. Rail transit systems around the country, including Amtrak, Washington's Metro, Philadelphia's SEPTA, New York's MTA and San Francisco's BART, to name just a few, are awash in a tidal wave of red ink.

Part of VRE's problem is that it is dependent upon one of America's least effective "businesses"--Amtrak--to operate and maintain its daily rail service under a contract costing millions. As other commuter lines discovered, Amtrak is the most expensive operating service around, and several systems have saved millions by dumping Amtrak and hiring private operators to run their trains under contract.

In recent years, both Los Angeles and Boston have dropped Amtrak and contracted out their rail services. And while VRE's management contends it is exploring this option, doing so shouldn't require years of study. If it saves money and improves service, just do it!

And if Amtrak threatens access to Union Station--as has been reported--then it's time for Virginia's congressional delegation to take Amtrak's management aside and explain how this attitude will jeopardize the $1.2 billion federal bailout that keeps them employed.

While every effort should be taken by VRE's management to hold down costs, the economics of rail transportation are such that even after every efficiency is adopted, VRE's costs and losses will still be high, and its operations will require substantial and escalating taxpayer subsidies. But there is a way out.

For starters, local officials need to put an end to any more talk about expanding the service and adding more trains and stations. More trains mean higher losses and more taxpayer subsidies. If the burden seems heavy today, it will get only worse in the future as the number of riders needing the $4,481 annual subsidy increases. Indeed, as VRE's budget reveals, merely freezing service and canceling its capital wish list reduces the annual passenger bailout to $3,558.

Following this service freeze, VRE needs to immediately put the operations out to competitive bid to reduce operating costs. While these cost reductions could be substantial, they will not come anywhere close to allowing the system to reach break-even point, such are the magnitude of VRE's losses.

Whatever operating deficit remains after cost efficiencies are imposed should be covered by fare increases. After VRE is no longer burdened with the goal of increasing ridership and losses, it can afford to raise fares to reflect the premium service provided to the tiny niche of travel connoisseurs in our community.

In comparison to driving, commuter rail allows users to sleep, read, make new friends, play with a laptop, listen to music, watch a DVD, chat on the cell phone, and/or watch the lovely Virginia countryside pass by. These are valuable benefits, and a core of commuters would be happy to pay for them. To this end, as VRE begins to hike fares to better reflect the value (and cost) of these gourmet services, others will find that costs outweigh benefits and seek alternatives.

As ridership declines, VRE will now have the opportunity to make substantial cost savings by canceling some of the train sets now burning dollars to and from Washington.

By raising fares and reducing costs, VRE can quickly reach the break-even point. VRE's management will have the satisfaction of achieving financial independence by limiting service to a discerning customer base, while the 99 percent-plus of the adults in the area will be free of the onerous burden of subsidizing the few.

Ron Utt of Falmouth is a senior research fellow at the Heritage Foundation.

About the Author

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

First appeared in Fredericksburg.com